How much do you honestly think your Corporate Reputation is worth?

978374_origRecent Financial Analysis has finally been able to prove that your Corporate Reputation really is your most priceless asset

We’ve all read the cliches and quotes that tell us how important your reputation is, and how easy it can be destroyed.

Everyone’s done it.

From Socrates to Henry Ford to Warren Buffet to Richard Branson – they’ve all given us beautiful quotations about the importance of Reputation, without any facts whatsoever to support it.

But new research has identified the true value of Corporate Reputation for the first time.

And the conclusions are extraordinary.

The True Value Of Your Corporation Is Bigger Than You Ever Imagined

A series of recent studies have analysed all the components of Market Capitalisation on the S&P 500, the FTSE 100 and the FTSE 250 – and their findings are extraordinary:

  1. In their 2016 study of the S&P 500, Reputation Dividend found that Corporate Reputation accounted for a massive 21% of Total Market Capitalisation, or a staggering US$3,977 Billion of Market Value.
  1. In their 2016 study of the FTSE 250, the results were even more extreme, with Corporate Reputation accounting for 25% of Total Market Capitalisation – or £91 Billion of Market Value.
  1. In the same study, they found that Corporate Reputation accounted for an incredible 38% of Total Market Capitalisation on the FTSE 100 – creating £702 Billion of Market Value.

The results varied by industry and Stock Market – but in every case Corporate Reputation accounted for a dramatic proportion of Market Value.

On the S&P 500, Corporate Reputation accounted for more than 15% of Total Market Capitalisation in several Industries, including: Telecommunications, Oil & Gas, Financial, Technology and Industrials.

On the FTSE, the same sectors were equally influenced – as were Consumer Goods, Healthcare, Utilities and Consumer Services.

The study also found that an improvement in Corporate Reputation leads directly to an increase in Stock Price.

On the S&P 500, an 5% improvement in Corporate Reputation yields a 2.5% increase in Market Capitalisation. On the FTSE it creates an increase of 2.2% in Market Capitalisation.

That would result in an increase in Market Value of approx. US$600 million for the average-sized S&P 500 company, and US$500 million for the average-sized company on the FTSE.

How much of your company’s Market Value is created by your Corporate Reputation?

And are you doing enough to increase it?

At Reputation, we advise CEOs of listed Corporations how to build and protect a Corporate Reputation that creates Corporate Value.

If you are a CEO of a listed Corporation, and you would like to discuss the best way to build the Financial Value of your Corporate Reputation, please contact us via our website, or email us at Connect@TheReputationPartnership.com and we will reply, in strictest confidence, by return.

How to protect your Share Price in a Corporate Crisis.

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Every Second Counts

A recent article in the Financial Times analysed Samsung’s response to the Galaxy Note 7 Crisis.

The conclusion was simple:

In a Corporate Crisis, the longer you delay, the bigger the cost.

The Historical Perspective

There are two famous and powerful historical examples that illustrate the point: Johnson and Johnson’s response to the Tylenol Crisis of 1982, and Merck’s response to their Vioxx Crisis of 2000.

Johnson & Johnson made the decision to withdraw its entire stock of Tylenol from shelves within just 5 days of discovering that a small sample of the product had been tampered with cyanide.

The company’s share price declined by 9.5%.

On the other hand, Merck took 1,065 days of obfuscation and regulatory negotiation between 2000-2004 before it eventually confessed to safety issues with its Vioxx pain drug and activated a global recall.

Throughout that 3-year period, Merck stock lost an enormous 46% of its value.

All the textbooks and PhD Theses use these two case studies to prove that fast actions reduce financial impact.

But do those principles still apply today?

Crisis Response Today

Several recent and ongoing Corporate Crises give us good opportunities to compare the impact of speed versus hesitation.

VW is an excellent, live example.

It took VW 476 days after the first evidence of its diesel emissions tests emerged in 2014, before it admitted that 11 million cars were actually equipped with illegal engine software.

Over that ridiculously prolonged period, VW’s share price collapsed by 45%.

Takata, the world’s largest suppliers of automotive air bags, took 194 days after the first report of fatal defects appeared in the New York Times in November 2014, before it confirmed the potentially fatal defects.

That was long enough for its share price to fall by 30%.

Despite all the hype, Samsung has actually handled its Galaxy Note 7 Crisis relatively well.

After first reports of its exploding problem emerged in September 2016, it took Samsung just 42 days to manage their way through 9 different phases of Crisis Management, resulting in the final closure of the entire product line.

The fall in share price was only 5%.

Target moved even faster in 2013. They told 40 million customers that their data had been compromised just 29 days after discovering the breach.

Their share price declined just 3%.

GM’s Mary Barra set a new standard in 2014. It took only 13 days for GM’s new CEO to admit to faulty ignition systems and start recalling vehicles.

As a result, GM’s shares lost only 6% in the next quarter.

On the other hand, Yahoo waited 55 days after discovering their data breach to tell 500 million customers in September 2016.

That delay could just have cost them US$5 billion of Verizon’s money.

The Speed of a Tweet

Social Media and Digital News make the need for speed greater than ever.

According to recent research by Freshfields Bruckhaus Deringer LLP, 28% of Corporate Crises have become international news within 1 hour.

Yet it normally takes companies at least 21 hours to formulate an official response.

And one year later, 53% of companies had not seen their share price regain pre-crisis levels.

So it’s truly amazing that companies like VW and Takata still think that procrastination can save them.

When it’s most likely to destroy them.

At Reputation, we help listed Corporations get prepared for potential Reputation Risks.

If you are a CEO of a listed Corporation, and you would like to discuss how to minimise the impact of a Reputation Crisis, please connect via our website or by email to Connect@TheReputationPartnership.com – and we will reply, in strictest confidence, by return.

One thing that Investors can’t measure is worth 34% of the world’s Corporate Value.

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How you manage your Intangible Assets can transform your Market Value.

Last year, Ocean Tomo published an extraordinary analysis which concluded that Intangible Assets accounted for an extraordinary 84% of Market Value on the S&P 500.

Tangible Assets accounted for only 16%.

Yes:

The entire Fixed Assets and Current Assets of the S&P 500 accounted for less than one fifth of Market Capitalisation.

I know that ‘Intangible Assets’ includes a large basket of items, but these numbers are still extraordinary.

IFRS 3 determines that Intangible Assets must be disclosed under five basic categories: Marketing-Related, Customer-Related, Contract-Based, Technology-Based and Artistic-Related.

But what’s even more interesting is this:

According to GIFT 2016, published by Brand Finance in partnership with the Chartered Institute of Management Accountants, the largest proportion of Intangible Assets are not disclosed at all.

They analysed 57,000 companies domiciled across 160+ jurisdictions with a total Enterprise Value of US$89 Trillion.

Their Global Analysis had different results from Ocean Tomo’s, which had been limited to the S&P 500 – but the findings were equally extraordinary.

They found that Net Tangible Assets account for US$46.8 Trillion – or 53% of Total Enterprise Value.

Disclosed Intangible Assets, including Goodwill, accounted for almost US$12 Trillion – or 14% of the world’s Total Enterprise Value.

But ‘Undisclosed Intangible Assets’ accounted for a massive US$30.1 Trillion – or 34% of the world’s entire Enterprise Value.

Let me just confirm what this means:

More than one third of the average Company’s Valuation is created by forces that never appear in their Financial Reporting, and can’t be measured by Market Analysts.

At Reputation, we specialise in advising CEOs of listed Corporations how to increase their Market Capitalisation by managing Investor Perceptions.

If you are a CEO of a listed Corporation, and you would like to discuss how we can help to increase your Market Value, please connect with us via our website or by email to Connect@TheReputationPartnership.com and we will reply, in strictest confidence, by return.