Before I
went to law school, I had a career in public relations and brand
management. I had the pleasure of having a client that was among the best when
it comes to brand reputation, Nintendo, where I was responsible (with our
client and a solid team) for product launches like this, this, and this (PDF, p. 3).  A few years ago,
I even wrote an article combining my interest in branding and my interest in
entity law: The North Dakota Publicly
Trade Corporations Act: A Branding Initiative Without a (North Dakota) Brand. 

Anyway, when I
recently received my version of ERN Economics of Networks eJournal, (Vol. 5 No.
68), I took note of the paper, Corporate
Reputation and Social Media: A Game Theory Approach, which is available
here.  The paper states in the abstract,
“Corporate reputation is more and more the most valuable asset for a firm. In
this day and age, corporate reputation, although an intangible asset, is and
will grow as the most essential asset to publicize and also protect.”  My first thought:  as a general matter, can that possibly be
true? 

It appears not,
though it is obvious that reputation can matter quite a bit to corporate (or
other entity) value. (I leave the commentary on congressional reputation to
others.)  One study found that “Corporate
Reputation contributes on average 26% of the value of a company's market
cap.”  In addition, a
2011 study found:

Analysis found
that on average, corporate reputation is delivering proportionately more value
to FTSE100 companies (c32 percent of market cap) than to FTSE250 ones (c14
percent). The study found that Royal Dutch Shell, Unilever, BG Group and Tesco
are the top performers in terms of reputational contribution to market
capitalization in 2010. Others in the top 10 included BHP Billiton, British Sky
Broadcasting, Centrica, Rolls-Royce, GlaxoSmithKline and Diageo.

. . . .

The ten most
valuable corporate reputations are contributing on average 48 percent to
shareholder value (as measured by market cap). That represents a combined value
of some £228bn. By contrast, the ten least effective reputations ( alist that
includes Yell Group, Sports Direct, Enterprise Inns, UTV and Cable &
Wireless) eroded value in 2010, by on average 10.7 percent of market cap worth
a total of £720m.

 

Reputation
contributions vary considerably by business sector. They range from an average
51 percent in the oil and gas sector to 16 percent in technology and utility
companies.

One would expect
that the value of reputation would vary by sector.  It is not shocking to me that the value of
reputation in the oil and gas sector is high or that the value for utility companies
would be low. Technology companies on the low end seems odd, if you think Apple, Google, or Samsung. Apparently this study was talking more about tech companies like Molex, who most of us
had never heard of until recently. 

The harm that
comes from reputational harms, though, is clearly a corporate concern. Just ask BP and
for, that matter, other industry players, following the Deepwater Horizon
disaster.  Much of my current research is in the oil and gas area, especially related to hydraulic fracturing for
those resources. Hydraulic fracturing
already has a reputational problem, to say the least, but a major disaster could
have fair reaching effects. And there are ways to drastically reduce the risk
of bad events.  As I have explained
elsewhere (footnotes omitted):

A massive
hydraulic fracturing accident could cause broad-reaching harm to the
environment, landowners, drinking water, industry employees, and consumers. As
witnessed when BP’s Deepwater Horizon oil platform suffered a blowout in the
Gulf of Mexico, everyone can suffer when an industry actor errs. In that
circumstance, one industry leader stated, “[i]t certainly appears that not all
the standards that we would recommend or that we would employ were in place.”
Nonetheless, all of the companies in the industry were negatively impacted by
the moratorium placed on offshore drilling following the disaster.

Although
companies need latitude to determine their own course on many business
decisions, API and industry leaders seem to agree that there are some parts of
the drilling process that must be followed. Industry leaders, trade
associations, environmental leaders, engineers, scientists, and state and
federal regulators should be working together to ensure that there are baseline
standards in place to create a list of, and then avoid, “never events” for oil
and gas drilling.

All involved
need to avoid allowing the enemy of their version of “the perfect” to be the
enemy of the overall good.  Instead, we
need to learn from the BP disaster and we need to learn from the experiences of
those drilling, regulating, and studying hydraulic fracturing. As Laurence J.
Peter, once said, “[t]here’s only one thing more painful than learning from
experience, and that is not learning from experience.”

As it turns out, protecting against reputational harm does not only protect company value. It often also has corresponding economic, environmental, and social value.