by Paul Rudo on 09/10/12 at 7:18 am
Oxford Metrica recently published a detailed study into the financial effects of reputation events on companies. In order to do this, they highlighted a number of extreme corporate reputation disasters, and compared them with the effects of these events on the stock prices of these organizations.
The study showed – in an objective way – that intangible elements such as reputation contribute a significant amount of equity to an organization… and that this equity can be measured. This is important because it means that organizations can evaluate their reputation equity, analyze the drivers of these reputations, and monitor reputation equity. And this means that organizations can set a framework for reputation management and developing an effective reputation recovery strategy.
Over a 5 year period, Oxford Metrica monitored the activities of the 1000 largest organizations in the world which for events which were very damaging to their reputations. In 80%of cases, these companies had lost at least 20% of their value due to losses in reputation equity.
TEPCO is the Japanese power company which was responsible for running the Fukushima power plant, which was severely damaged following a major earthquake and tsunami in March 2011. This resulted in one of the most serious nuclear disasters in history, and the partial nationalization of the company.
Value lost: 89% ($37,368,000)
In August 2011, Dexia became one of the most important victims of the European financial crisis.
Value lost: 87% (3,990,000)
In September 2011, Diamond Foods shares fell sharply after news of “momentum” payments which had been made to walnut growers. Many investors had argued that these payments had been held back until after the end of the financial year in order to hide the expense from investors.
Value lost: 78% ($1,406,000)
In about October 2011, Olympus faced a scandal after the suspicious firing of CEO Michael Woodford after he’d inquired about a suspicious M&A transaction. The company later admitted to accounting irregularities.
Value lost: 58% ($5,062,000)
Research In Motion (RIM)
Research In Motion has been involved in a series of serious intellectual property disputes and accusations of reporting irregularities. This was compounded by a system-wide failure of the Blackberry network on October 10 2011, which affected over 70 million users.
Value lost: 50% ($6,095,000)
In January 2011, Renault made headlines as it seemed to have been the target of industrial espionage related to the unpatented battery technology for its electric car technologies, which resulted in the suspension of 3 Renault executives.
Value lost: 36% ($6,266,000)
In April of 2011, Sony fell victim to a major security breach on its PlayStation Network which leaked the confidential personal details of millions of customers.
Value lost: 17% ($795,000)
In September 2011, it was announced that Swiss Bank UBS had allegedly lost $2 Billion as the result of a rogue 31-year-old trader.
Value lost: 13% (1,679,000)
Between 2005 and 2007, the News of the World had been involved in a phone hacking scandal. Upon further investigation, it was found that they had used bribery and police corruption to illegally obtain sensitive confidential information. Surprisingly, the study found that the damage done to News Corp’s reputation did not significantly affect its equity.
Value lost -3% (-$1,529.000)
This study really shows the importance of having a proactive reputation management and disaster recovery (not just for IT) plan in place. With social media and online news reporting, bad news travels quickly… and companies are judged by how fast and how well they can handle an unexpected crisis. This is especially true of investors and stakeholders, since reputation events such as these often reveal details about the company which are not mentioned in annual reports or other public disclosures.
For more information on the highlighted events, the methodology used in this study, and other findings highlighted by this research, you can click here to view the full report.