By Sameer S. Somal, CFA
Reputation is everything.
Many of the opportunities presented to us come based on our reputations.
Yet reputation is an intangible, ambiguous, and complex concept. It involves impressions, emotions, and perceptions encompassing the estimation in which a business, person, or thing is held by a specific group or the public at large.
Businesses grow and succeed through their reputations. A digital presence and online communication strategy are not just part of a company’s reputation, they form the firm’s foundation — the most critical component to its survival and growth.
But compared with traditional brand marketing, digital reputation management is a new frontier where applicable guidance and proven research are in limited supply.
Almost two decades ago, Mark Bunting and Roy Lipski proposed that online perception and opinion, regardless of its accuracy, have as great an effect on a company’s reputation as the company’s actions. These perceptions, quickly formed and shared across myriad traditional and digital platforms, create both reputational opportunities and challenges.
Image courtesy of Blue Ocean Global Technology
How much is a reputation worth?
Today, we interact with friends, family, and colleagues largely through text messages, email, and social media, where perception and reality are often confused. So both digital and in-person first impressions are critical.
Traditional financial education supplies a comprehensive framework for understanding the valuation of tangible assets, including the value of public and private companies. Portfolio managers and analysts make investment decisions after thorough research into a firm’s fundamentals. However, the subjective valuation of the firm’s intangibles — brand equity, relationship capital, patents, and, of course, reputation, among them — creates a larger challenge.
Burson-Marsteller, a leading global public relations and communications firm, found that 95% of the CEOs surveyed believe that corporate reputation plays an important or very important role in the achievement of business objectives. But, only 19% of these same executives had a formal system for measuring the value of that reputation.
Beyond recognizing that it does affect a firm’s value and long-term growth prospects, we don’t understand reputation all that well. When drawing conclusions on valuation, we often lump brand value and reputation in with other components that are inherently difficult to quantify — under the balance sheet’s goodwill line item.
Reputation is both a repository of shareholder value and a means for growing it.
“Decisions to buy or not buy from a company have increasingly less to do with place, packaging, or promotion and almost everything to do with how much your friends, family, and even strangers provide online assurance that the product or service is worth the cost.” — Elaine Cheng, chief information officer, CFA Institute
Brands accounted for more than 30% of the S&P 500 stock market value, according to The Economist. That is the consensus among corporate CEOs. Sixty percent of chief executives surveyed by the World Economic Forum and public relations firm Fleishman-Hillard said they believed corporate brand and reputation represented more than 40% of their company’s market capitalization.
Better reputations do not guarantee growth, but they certainly expand the opportunities to achieve it. So firms need to focus on reputation management when they align their strategic communication with investor and client preferences. Moreover, proactive reputation management gives business owners insights into their strengths and weaknesses.
The framework for making informed inferences about reputational value has become clearer over the past decade. The “2017 US Reputation Dividend Report” supports the view that investor confidence derived from a firm’s reputation drives shareholder value. Indeed, one out of every five dollars of market capitalization is a product of the confidence instilled by a company’s reputation — that’s about$4.6 trillion in the first half of 2017, according to the report. Moreover, the 10 most economically powerful reputation assets among US corporations accounted for close to half of their corporate market cap at the start of 2017.
Strong brands and proactive reputation management help to mitigate investor risk and reassure for shareholders when earnings are weak.
The world is literally at our fingertips.
So how can we protect our reputations? It starts with searches.
Every internet search yields a search engine results page (SERP). Every second there are 63,000 Google searches, and every day there are 5.5 billion.
People perform these searches for countless reasons. They may be googling themselves or looking for their next investment manager. They might even be googling you. After all, it’s a fair bet that anyone to whom we hand our business card will search online for more information. Positive online reviews from real clients will foster trust with prospects and referrals. Conversely, negative hits to our online reputation will quickly damage our offline one.
Search engines employ complicated algorithms. If a negative post cites relevant links and information, it will leapfrog more laudatory results. A negative link is the last thing users should see when they search for your business.
Unfortunately, most people only go through information on the first page of a search. In fact, 95% just look at that first page of Google search results, and 67% of all clicks are confined to the top five listings. So if positive information is further down, it is effectively buried.
Guilty Until Proven Innocent
In the age of digital Darwinism, we are now guilty until proven innocent. And even when we are innocent, we may still be guilty online.
Consider this scenario: A portfolio manager at a wealth management firm is wrongly accused of negligence by a disgruntled client. The baseless charges are later dismissed, but when the firm is googled, the accusations appear high up on the first page of the search results.
Ignoring this digital footprint could have catastrophic consequences for the company. Left unchecked, the negative commentary will not only directly affect growth, but will also lead to tangible losses. A damaged online reputation can destroy an established firm and its brand.
So the best reputation offense is a strong defense. A proactive presence builds digital resilience, protects a firm’s reputation, and makes it easier to repair reputational damage.
Your reputation and that of your firm are your most valuable assets. Make sure you’re safeguarding them online and everywhere.
Disclaimer: Please note that the content of this site should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute.