More than a quarter of the value of small and mid-sized firms is tied to their reputation, yet many firms still fail to properly manage it. That’s the shocking finding of new research by accountancy and business advisory firm BDO and independent membership organisation the Quoted Companies Alliance.
The research says that small and mid-cap quoted companies estimate that, on average, 28% of their market value is accounted for by reputation. This matches similar research on the market value of reputation such as the 2015 UK Reputation Dividend Report which said that 30% of the market value of FTSE 100 companies is based on reputation.
Reporting on the research The Telegraph claims this means that, including the UK’s biggest firms, the total value of corporate reputation for all UK-listed companies topped £1.7 trillion at the close of last year.
The average market capitalisation of an AIM listed company is £66m which means they could lose up to £19m of their market value if they don’t professionally manage corporate reputation risks. The average market capitalisation of a small and mid-cap quoted company on the main market is £332m, which means they stand to lose up to £90m if their corporate reputation is damaged.
Volkswagen has seen €20bn (£15bn) drop in value since the emissions scandal. Other recent high-profile crises that have damaged corporate reputations include cyber attacks on TalkTalk and Ashley Madison. Thomas Cook’s inept handling of the death of two children at one of its resorts in Corfu and reluctant apology led to a reported £75m drop in its value far greater than any potential loss lawyers were trying to protect it from. In contrast Alton Towers owner Merlin managed its reputation well with a quick heartfelt apology meaning that although it suffered direct losses caused by the temporary closure of the park it didn’t suffer long-term damage to its value.
A quarter of companies have no formal reputation management plans
Of the 220 companies surveyed 79% said that corporate reputation is very important, but 26% do little to professionally manage their corporate reputation. Just 66% of small and mid-cap quoted companies say they have formal corporate reputation risk and crisis communications management plans in place and 25% of those that do have plans don’t even review their plans at least every year.
Advisers to the sector believe that companies are overstating even these poor findings. Many believe their small and mid-cap clients do not do much proactively to manage their reputation and that the companies do not have the skills on the board necessary to address corporate reputation issues effectively.
Traditional media still believed to be biggest reputational risk
Companies still believe that allegations or rumours being made about them in traditional media is the biggest risk with 21% saying they fear newspapers, radio and television. Only 17% have the same fear about the internet. By not having up to date and robustly tested reputation management plans companies increase the risk of internet rumours becoming high profile mainstream media news stories.
Some of the real risks that companies fear include cybersecurity attacks (18%); internal fraud, bribery or corruption (12%); financial reporting errors (7%); and other 12%. None said they feared a physical attack, which betrays a lack of understanding about how they might be at risk from protest and activist groups. 13% of companies didn’t actually know which corporate reputation risk their company fears the most.
Although just 17% fear internet rumours, 31% of companies claim to have been the victims of internet allegations. This highlights the fact that sometimes the best course of action is to ignore it which is what 48% of them did (but down from 65% in 2014). However, the only way for companies to know if it is best to take action or to ignore rumours is if they have robust monitoring systems that rapidly alert them so that PR professionals can make a risk assessment and advise on what actions should be taken as part of their reputation management strategy.
Almost half (47%) of companies that have experienced an internet allegation or rumour thought it had negatively affected the company’s brand and employee morale (46%).
Corporate reputation should be the responsibility of the CEO, chairman, board and executive management team and that qualified PR professionals are the ones with the expertise and experience to counsel them on how to manage and protect it so that it becomes a value generating opportunity rather than a risk.
The report also offers some top tips for companies managing their corporate reputation all of which I’d agree with, although companies need to do more to actual start managing their reputation better.
- The most important tip is that “corporate governance and corporate reputation go hand in hand”. That’s because a company’s reputation is a result of what it actually does. Reputation is what people think about a company and that is mainly defined by how a company behaves. Public relations is the management discipline that looks after reputation – the result of what you do, what you say and what others say about you. But the ‘what you do’ part is always most important.
- “It is not enough to just have good governance” – you have to report on it too”. That’s the ‘what you say’ part of the definition of public relations. Reporting on it today is easier and more cost effective than it has ever been. Using new concepts such as integrated reporting and digital and social media mean that small and mid-size can communicate in ways that previously were only really available to much larger, better resourced companies.
- “Treat corporate reputation as you would any risk” is something that simply doesn’t happen enough. One of the reasons why is that companies don’t want to invest in putting a proper reputation management strategy in place and simply see PR as an adjunct of marketing that can be turned on or off depending on how much they want to spend. The reality is that it’s an essential element of risk management. PR isn’t something a company can choose to do or not do as it has to have a reputation. It has to have relationships. The only choice is if the company wants to professionally manage its relationships and reputation or just leave it to chance. With millions of pounds of market value resting on reputation it would be an extremely brave, foolhardy and negligent board that left it to luck. Running crisis communications simulations is a very effective way of both getting the board to understand the risks as well as putting the company in a much stronger place for dealing with them.
- “Figure out who is responsible for managing corporate reputation” It is the CEO who has ultimate responsibility, but it also involves the rest of the board and management team as there are reputational risks and opportunities in every area of the business. Running a crisis communications simulation is a good way of helping to define different responsibilities and identify where extra internal and external support is needed.
- “Corporate reputation presents risks, but also opportunities” Oddly, the final tip is probably the second most important. Reputation should be an opportunity, but it needs investment to create, grow and take advantage of this opportunity. Investing, even modestly, in reputation management before a crisis occurs puts a company in a much stronger position for dealing with and emerging from it with its reputation intact. Investing in PR to manage reputation is investing in an important asset that contributes to long-term growth.
You might say “well you would say that” as my additional tip would be it’s absolutely essential to seek professional advice. But you can see from the research that’s not what most companies do as just 46% of companies say they would primarily turn to public relations advisers for advice on corporate reputation, while worryingly 13% would turn to their lawyers.
I suspect this is for two main reasons. Most directors and managers wouldn’t think they can sort out a complex financial issue without the help of an accountant, or a complex legal issue without the help of a lawyer, but somehow they believe they can do reputation without help. The second is PR’s own fault as its old reputation for being ‘fluffy’ or just ‘publicity’ or ‘spin’ still haunts it. Unfortunately that’s true of some practitioners, but isn’t what true public relations is really about.
Public relations is a management discipline. You wouldn’t take legal counsel from an unqualified lawyer who wasn’t a member of the Law Society so you shouldn’t take reputation advice from someone who isn’t qualified and an accredited practitioner member of the Chartered Institute of Public Relations.
If you know any small or mid-size cap quoted companies that need professional advice on managing their corporate reputation then please get in touch for a free, confidential chat.
You can read the full report in Pulse magazine (opens as a PDF).