Building Reputation

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Building Reputation

• Prepared by the
• Council of Public Relations Firms

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The value of a business increasingly lurks not
in physical and financial assets that are on the
balance sheet, but in intangibles.

• The Economist, June 12, 1999

3
Shift from dependence on tangibles

• Traditionally companies valued by physical and
  financial assets
• Real estate, machinery, inventory, cash
• But companies have been shedding those assets
• Outsourcing, just-in-time inventory, leasing
• And new assets are adding value
• Brands, employee loyalty, public trust,
  management credibility

4
To claim that tangible assets should be measured
and valued, while intangibles should not -- or
could not -- is like stating that things are
valuable, while ideas are not.

• Baruch Lev, New York University Stern School of
  Business

5
Accounting industry knows it must adapt

• Like it or not, non-traditional yardsticks are
  on their way.
• Robert L. Israeloff, ChairmanAmerican Institute
  of Certified Public Accountants

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The accounting industry faces a dilemma

• Information age accountants are faced with a
  challenge live with the old system and distort
  the truth, or develop a new system fraught with
  the dangers of measuring intangibles.
• William Davidow, Forbes ASAP

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Ernst Young Measures that Matter

• Interviews with portfolio managers
• Analysis of 300 sell-side investment reports
• Survey of 275 buy-side investors
• Concluded that 30 to 50 of a companys value is
  in intangible assets

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Reputation encompasses all these intangibles
employee loyalty
management credibility
reputation
social responsibility
public trust
customer relationships
brands
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• If youre not managing your corporate
  reputation, youre wasting a global corporate
  asset.
• Roy Vagelos, CEO, Merck
• A reputation is an incredible asset, one you
  cant appreciate until you lose it. And when you
  do, every aspect of business gets harder and
  more costly.
• Steve Miller, former CEO, Waste Management

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If you lose dollars for the firm by bad
decisions, I will be understanding. If you lose
reputation for the firm, I will be ruthless.

• Warren Buffett

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CEOs perspective on reputation

• 96 of CEOs believe reputation is important to
  their companies
• 77 believe good reputation helps sell products
  and services
• 61 believe good reputation helps attract
  employees
• 53 believe good reputation increases credibility
  in times of crisis

CEO Magazine/Hill Knowlton Poll, April 1999
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Reputation contributes to business performance
The Rewards of Being Viewed as a "Winner"
Brouillard Communications/Yankelovich Partners
Inc.
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Components of Corporate Equity

• Familiarity with the Company 25
• Overall Impression of the Company 20
• Perceptions of the Company 30
• Likelihood to Engage in SupportiveBehavior 25
  

Yankelovich Partners Inc.
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Reputation affects share price
Average Price/Earnings Ratio
High Corporate Equity (scores 45 and over)
28.4
5 Billion market cap for average Fortune 100
company
Moderate Corporate Equity (scores 31-44)
25.7
Low Corporate Equity (scores 30 or less)
25.4
Fortune/Yankelovich Partners Inc., 1998
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Reputation Multipliers

• Top 10 Corporate Equity vs. Bottom 10 Corporate
  Equity Companies are
• 7X more likely to have consumers buy
  products/services at a premium price
• 5X more likely to have their stock recommended
• 4X more likely to be recommended as a good
  place to work
• 3X more likely to be recommended as a good
  joint venture partner
• 1.5X more likely to receive the benefit of the
  doubt

Burson-Marsteller/Wirthlin, 1998
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Management Consultants are beginning to address
reputation management
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Why is PR appropriate for managing reputation?

• Influences the intangibles
• Communicates with all stakeholders
• Strengthens relationships

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Even accountants reinforce the importance of
communications

• How skillfully companies manage key
  non-financial areas of performance and then
  communicate related successes to outside
  constituencies -- shareholders, investors -- will
  have a powerful effect on how they are valued. In
  fact, the more analysts use non-financial
  measures, the more accurate their earnings
  forecasts become.

Ernst Young, Measures that Matter
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Conclusion of Measures that Matter

• Corporate leaders who effectively measure,
  manage and communicate their non-financial
  performance not only contribute to the increased
  valuation of their firm, but also improve their
  firms ability to attract new investment capital.

Ernst Young, Measures that Matter
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High Reputation Correlates to Financial
Performance
Total Return
Based on the 1998 Fortune Most Admired
Companies rankings