Your Brand Reputational Value Is Irreplaceable. Protect It!

Three decades ago as much as 95% of the average corporation’s value consisted of tangible assets, according to a report by Thomson Reuters and Interbrand. Today 75% of that average corporation’s value is intangible.

In other words, a business’s most valuable asset is its good name, its brand and reputation. 

 “Brands outlive product cycles…. No branding, no differentiation. No differentiation, no long-term profitability. People don’t have relationships with products, they are loyal to brands.” Brand strength often runs parallel to the success of a company. Consumers latch onto a brand they feel comfortable and familiar with, one that deviates slightly from other similar products in some way. As a result of this loyalty, customers are more likely to purchase from their favorite brands than from other brands. Apple has mastered this idea. Consumers line up to buy their new products (Apple Watch, iPad, iPhone) even before all information about the products has been provided to the public. Apple has created a brand where consumers trust that the products released by the company will be of the highest quality and worth the money. In the current market, Apple is able to easily convince consumers that they have a need for a product Apple is selling; consumers trust that Apple knows them enough to suggest good products. For Apple and many other brands, trust contributes to consumers’ loyalty and desire to return for future purchases.

That value , belief , trust is the organization’s brand reputational value. Strong brand reputational value equals greater profits.

A company’s brand reputational value has four basic elements: expectations, perceptions, business relationships and unique intellectual property assets. Improved quality in each of those areas increases financial value for the organization. For instance, a company with a reputation for quality and safety can charge more for the same product than their competitors because customers put a price premium on quality products and services that give them positive experiences. Companies with strong brands can retain employees better, too. A recent study suggests that 80% of employees between the ages of 18 and 30 will leave a company if they believe it has a weak brand or no association with ethics.

In today's business climate there are four main avenues by which you can quickly lose your company’s brand reputational value. They are:

1. The Internet and social media. Any ethical or compliance failure, even an isolated and apparently minor one, can be instantly broadcast all over the world. Only a few years ago experts were saying you needed a top-notch public-relations capability to keep up with the 24-hour news cycle. Today 24 hours is an eternity. You need to be on your toes more than ever.

2. Subcontracting and outsourcing. True or false: In June 2009 Continental Airlines stranded passengers on a small plane outside Minneapolis for six hours overnight when it could have allowed the passengers off the plane and into the terminal.

False. The company operating the flight was actually ExpressJet , an independent partner of Continental’s. ExpressJet licenses the Continental name to fly shorter, regional flights. ExpressJet was identified in many news stories, but Continental was the name in the headlines and in short television reports, and it absorbed the biggest loss of brand reputational value. It also ran into regulatory trouble, as the Transportation Department conducted a review of both ExpressJet and Continental and ultimately fined them both, along with a subsidiary of Northwest Airlines .

A customer, partner or contractor may be the guilty party in violating ethical standards, but they don’t always receive the worst of the brand reputational value damage

3. Regulatory. Litigation over ethics and compliance violations has been on the increase, and it will continue to increase. The Obama administration and other governments around the world are ratcheting up investigations and enforcement actions. Billion-dollar fines and settlements paid by Siemens and Pfizer , as well as many other less publicized fines, are testaments to this increased regulatory activity.

4. Employees. According to The Network, Inc., which runs the ethics hotline tnwinc.com, employees commit fraud more often during tough economic times. The company reports that of all the complaint calls it gets, the portion that were fraud-related whistle-blower calls rose from 14% in the first quarter of 2007 to 21% two years later. Thanks to a weakened employer-employee social contract and recent rulings finding that whistle-blowers can share in the proceeds from penalty payments, workers have more incentive than ever to become whistle-blowers. A company can get entangled in costly, brand-damaging legal action even when the employee engaged in ethical misconduct isn’t senior management.

The cost of a compliance or ethics failure goes well beyond legal fees, court judgments, fines and penalties. It spills over into leadership distraction and turnover, forced alteration of a working profit model and heightened scrutiny in the future. With hard assets, such as plants and factories, companies typically spend 12.5% to 15% of their value annually protecting, maintaining and insuring them. But many companies don’t invest that way in their intangible assets, despite the rapid growth of their economic importance.

Companies must treat their brand reputational value like any other asset. They should manage it just the way they manage real property and equipment. Here are five steps to take:

1. Invest in the three to five areas that will be most profitable. There are at least nine major areas in which ethics problems can hurt a business: markets and customers; strategy; product and service; design, brand and quality control; intellectual property and knowledge management; leadership; workforce; sub-cost-of-goods-sold expenses; risk management; and procurement. Determine which three to five of those represent the greatest business potential and risk for your organization. Is using an ethical culture to attract and retain superior employee talent a preeminent concern? Emphasizing lower risk and higher product safety so you can sell your product or service at a higher price?

2. Invest for the long term. Improving ethics in business for profitable gain is not a quarterly or one-year undertaking. Management needs to have at least a five-year plan and must try to foresee demographic and economic trends that can affect that plan. Ethical investments, just like investments in manufacturing facilities, can easily take five years to materially pay off.

3. Maintain an open communications structure. To protect a company’s brand and reputation, information has to be able to flow immediately to a sufficiently high level of the organization. One way to guarantee this is by having a consistently open line of contact between an ethics officer and senior management. If you don’t have a communication structure that allows concerns to become known, then build one.

4. Insure against individual idiocy and the ill-educated. It only takes the improper actions of one employee, one remote office or one outside agent representing the company to significantly damage your brand. Smart companies recognize and focus on the individual, always asking who exactly they’re hiring as an employee and whether they’ve done enough checking and testing of the person. Also, they know whether they are making sure their requirements concerning expected behavior reach every individual.

5. Insure against outside institutional incompetence. Apply all the same expectations for your company’s compliance, ethics and control standards to your vendors and partners as well. Not only must you exercise due diligence on entering into a relationship, but you also need to continually verify, at least for the top 10% of your supply chain, that your compliance and ethics controls are implemented and working.