How to protect your Share Price in a Corporate Crisis.

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Every Second Counts

Last year, an interesting article 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.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

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.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

Can you afford to lose 20% of your company’s Market Value?

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A Corporate Crisis consumes most CEOs. Are you prepared for yours?

According to Oxford Metrica, a strategic advisory firm, every company today faces an 82% chance of experiencing a Corporate Disaster within any 5-year period.

They define a Corporate Disaster as an event that results in a company losing 20% of its Market Value.

So if you believe them – and they are a rigorous analytics company that is respected around the world, so I think you can – your company will experience a sudden and dramatic loss of your company’s Market Value in the near future.

According to another study by the Wharton School of the University of Pennsylvania, a sudden Stock Price drop is not just a short-term problem – it’s a long-term problem.

On average, it takes 80 weeks for a company’s Stock Price to recover after a sudden price drop – that’s 1½ years before the company’s Stock Price recovers to its original value.

If the Stock price fall is the result of Earnings Risk, recovery takes longer: 93 weeks.

If it’s the result of Acquisition Risk, it’s 121 weeks.

If it’s Industry Risk, it’s 137 weeks.

And if it’s Competition Risk, the recovery time is more than 3 years – or 162 weeks.

They also analysed the recovery time by risk, across industries, and the situation is much more extreme for the IT, Utilities and Healthcare sectors.

So the brutal conclusion is this:

  1. Your company will probably experience a Corporate Disaster that could result in a sudden 20% loss of Market Value, sometime in the next 5 years.
  2. After this event, it could take 1½ years on average for your Stock price to recover – maybe more.

Equilar calculates that the average S&P 500 CEO serves just 7.4 years in charge of their company – and just 6.0 years at the median.

So it’s likely that your imminent Corporate Disaster will dominate your tenure.

But recent research has shown how companies with strong Corporate Reputations are less affected by Corporate Crises, and recover from their Crises faster.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

Is your Company prepared for the World’s Biggest Business Risk?

germany-1367107_1920In a world full of Business Risks, one Risk is now more critical than any other.

The world has never been more challenging for Business.

The IMF’s latest report maintains its forecast of a moderate 3% growth in world output for 2017. But it clearly emphasises that “the balance of risks is viewed as being to the downside”.

The “Global Risks Report, 2017” published by the World Economic Forum illustrates the enormous complexity of risks facing the world – and the enormous breadth of risks that confront the world of Business today.

Global politics have become unpredictable. Protectionism has become a potential threat once again. The global environment continues to deteriorate. The regulatory environment has never been more challenging. Competition intensifies in every industry. The war for talent has become more competitive than ever. And cyber-crime is an increasing danger for every business and government.

At the same time, we are witnessing a breakdown of public trust in politics, business and the media.

The world of business is genuinely facing more risks than ever before.

Yet all these risks have combined to create the biggest risk of all.

The World’s Biggest Business Risk

The world’s biggest business risk is consistently identified in four of the most authoritative International Research Surveys in the world, carried out by some of the world’s most respected experts in Business Risk:

  1. Aon

Aon is the largest insurance broker in the world, and last year they published the results of their latest biannual Global Risk Management Survey.

The Survey summarised research among over 1,400 Risk decision-makers from 28 industries in 60 countries, and the results are startling.

Respondents identified no less than 53 significant risks to their business – but the No.1 Risk to business worldwide might surprise you.

It was the Risk of “Damage to Reputation/Brand”.

Reputation Risk was the most important Business Risk across Asia Pacific, North and South America, the Middle East and Africa.

It was the most important Business Risk in Aviation; Banking; Education; Food Processing & Distribution; Government; Insurance; Investment & Finance; Professional & Personal Services; Real Estate; Retail; Telecommunications & Broadcasting; and Non-Profits.

It was the most significant Business Risk across the World and throughout Business Sectors.

Yet these findings merely confirm what previous surveys had already identified:

  1. Clifford Chance/EIU

An earlier Survey commissioned by Clifford Chance – one of the world’s top ten law firms – was carried out by the Economist Intelligence Unit among 320 Board Level Executives around the world. (“View from the Top”)

They were asked ‘Which Risk Categories is your Board currently focussing on?’

The top two answers were:

Financial Risk and Reputation Risk.

These came well ahead of their other Business Risks – Legal, Political, Health & Safety, Environmental, Cyber, Human Rights and Societal/Consumer Activism.

  1. Deloitte

In Deloitte’s earlier “Exploring Strategic Risk” research among 300 C-level executives found that Reputation Risk was cited as the #1 Risk in Business.

A year later, the “Deloitte 2014 Global Survey on Reputation Risk” found that Reputation Risk had become even more important:

In fact, 87% of Executives surveyed rated Reputation Risk as “more important” or “much more important”.

  1. ACE

ACE, the owner of Chubb Insurance and one of the world’s largest Insurance Companies, carried out a survey of 650 EMEA Risk Managers and summarised their findings in their “Reputation at Risk” Report.

The conclusion from these Risk Managers was irrefutable:

81% said that “Reputation is our Company’s most significant Asset” – yet ACE also found that their respondents believed that “they are facing a rise in the Risks associated with Reputation”.

The Most Difficult Risk to Prevent

The primary reasons for the rise in Reputation Risk were generally consistent across all the surveys:

  1. Digital and Social Media now enables news of the slightest Reputational issue to travel around the world at destructive speed.
  2. Reputation Risk is “The Risk of Risks”. Every single other Business Risk can quickly spread to damage a Corporation’s Reputation. As a result, Reputation Risk can come from anywhere in any Corporation, at any time.
  3. Corporate Distrust is leading to relentless Business Scrutiny – from the Public, from Governments, from Regulators, from the Media, from everywhere.
  4. The Breadth of Stakeholders that a Corporation must attend to has never been greater – making it increasingly challenging to provide total satisfaction across all Stakeholder Groups.

For these four reasons – and many others that we shall discuss in later Blogs – it seems for many Businesses that Reputational Damage is a perpetual threat and the most challenging Business Risk to prevent.

The Most Difficult Risk to Manage

Similarly, it is the most challenging Business Risk for most Businesses to manage.

This is for several, interconnected reasons – of which these four are the most obvious and frequently cited:

  1. Definition

Unlike most Business Risks, Reputation Risk is difficult to define and categorise. Because it is seen as ‘The Risk of Risks’, it spreads across all components of a Corporation’s business.

  1. Measurement

Because Reputation Risk has emerged as the world’s leading Business Risk only recently, the tools and methods to measure, monitor and manage it are still evolving.

  1. Preparedness

Most Corporations, therefore, do not have well-established, proven Reputational Risk Management Systems in place. As a result, there is a sense of insecurity in Reputation Risk preparedness.

  1. Insurance

Reputational Risk remains difficult to insure, compared to other Business Risks. Two-thirds of companies in ACE’s sample, for example, said that they “feel inadequately covered for reputational risk”.

Managing Reputation Risk may be challenging, but it’s never, ever been more important.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

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?

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.