How valuable is a company's brand and, therefore, how much emphasis should be placed on maintaining it?
An often-quoted figure is that 60 - 80% of the market capitalisation of public companies is due to intangibles such as its reputation in the marketplace, with the rather smaller remainder accounting for tangible assets. After all, if given the choice between buying a company's good name or its building and machinery, the former would be a far more enduring investment; that is, as long as it is managed correctly.
This is where the board has a significant role to play as it bears the responsibility of weighing each and every decision up against its potential impact on the company's brand. A question that should be etched on the wall of every boardroom in the country should be: What impact will our actions have on the company's good name?
Although the world of branding may seem something of an inexact science, a fact that may not sit well with the chartered accountants around the boardroom table, the good news is that managing a company's reputation - as one might manage one's own - is simply a matter of common sense.
For instance, you would never dream of hiring a convicted criminal to clean your house, or an inexperienced tradesman -even your husband - to poke around the electrics; so, don't hire people with questionable motives or poor qualifications to work for your company; and never be accused of nepotism! Also, if as a company you value people and the environment, do not, whatever you do, expose your staff to danger, pay them poorly or damage the environment through harmful practices. It's all about acting responsibly and remaining true to corporate values, especially when no-one's paying attention.
Most companies make mistakes such as these when their eyes are focused on the short term goal of making a lot of money - only to repent at leisure for their greed and lack of foresight as they watch their company reputations crumble and their fortunes falter.
In some cases, as with the Enron debacle in which the innocent Arthur Andersen was nevertheless embroiled, the consequences of not identifying and planning a suitable response to eventualities that might pose a risk to a company's brand can be fatal to an organisation.
Closer to home, we recently witnessed the damage that an ostensibly small issue at a low level can do to a corporate giant such as Tiger Brands. Fortunately, thanks to the company's crisis management response, it is succeeding in restoring its former trusted position.
Nike, too, has learnt the lesson the hard way as its reputation was trashed some years ago when reports emerged that it exploited children in developing countries in the manufacture of its goods. The sportswear giant has over the years managed- albeit at great cost - to undo most of the damage to its reputation. And, where in the past people may have cared less about where and how the products they bought were made, today's consumer is very different, consciously making decisions about whether or not to invest or support companies based on the way they act.
In order for board directors to properly carry out their mandate, they simply must build the concept of brand management into the overall company strategy, as well as their board processes, ensuring that every decision taken is done so with the best interests of the brand in mind. There is no alternative but for the question, “How will this decision impact our good name?”, to be entrenched in the overall risk management process. And for every potential risk identified, worst case scenario and thorough recovery plans must be determined in advance.
Coming up with an adequate response during a crisis is simply too late. Don't forget, while it may take years to build and organisation, its reputation can be destroyed in a matter of seconds.
