There’s an old saying: It’s not personal, it’s business. For a long time, we’ve equated being good at business with not caring what others think.
This simply isn’t true anymore—if it ever was.
Business, in an interconnected world, is increasingly personal.
Stakeholders, what they think and how they perceive your company, matters a great deal. These customers, investors, employees, and regulatory agencies impact a company’s growth, ability to do business effectively, and, perhaps most important, to increase overall value.
Reputation management isn’t about racking up brownie points for good behavior. It’s not about being a media darling or social media favorite.
It is about protecting your bottom line.
Since the 1970s, Company Valuation has Dramatically Changed
What makes investors want to buy your stock? What makes analysts recommend you to their readers and clients? What makes your share price uptick a little more each day?
It’s not your physical plant. It’s not your balance sheet. Or rather, it’s not only those things.
In the past 40 years, there’s been a dramatic shift in how companies are valued and assessed. The traditional model—where physical and financial assets make up the lion’s share of a company’s “value”—has been turned on its head.
Now it’s the intangible “other factors”—i.e. reputation—that really sets a company apart and makes investors, reporters, and industry insiders take notice. We estimate that nearly 84% of a company’s value is now based on reputational factors.
Increasingly, consumers care not only about what kind of products you make but what kind of company you are.
The answers to these questions are the reason a customer picks Coke instead of Pepsi; Barnes & Noble over Amazon. It's why an investor chooses one stock over another.
How the Digital Economy Impacts Corporate Trust
We now bank, shop, and socialize online—often with complete strangers—which means that trust is more important than ever before. Companies like Uber, Airbnb, and TaskRabbit (now owned by IKEA) are founded on the principles of our new trust economy.
When that trust is broken, the discontented have an array of options to express their displeasure, regardless of company or industry. All are susceptible to Yelp and Glassdoor reviews, not to mention social media rants. Bad news travels fast, and digitally, it travels at lightning speed.
Buying stock is a vote of confidence, a statement of belief in a company’s future success. If confidence is on the wane, and belief is hard to find, then buyers will become increasingly scarce while stock price and market value decline.
Look to Facebook’s 2018 stock price decline to know this is true.
Excellent Reputation Can More than Double Your Returns
On the other hand, a good reputation can be a boon to your bottom line.
Since 2006, the RepTrak 10—our list of 10 global companies with the strongest reputations—have outperformed the S&P 500 by a factor of 2.5.
But you don’t have to be in the 1% for public esteem to reap the benefits of a better reputation. Even small improvements can yield big returns.
We estimate that a 1-point increase in your reputation yields 2.6% increase in your market cap.
That 2.6% increase may not seem like a lot, but it translates to an average of $1 billion in additional value.
How’s that for a return on investment?