Corporate reputation worth over a quarter of company value -BDO

For Scotland’s AIM listed companies this means that £428m of their overall value is based on reputation.

Almost four-fifths (79 per cent) of companies believe that corporate reputation is important but are uncertain about what to do to maintain it. Just 43 per cent of companies believe that they are aware of the risks involved in reputation management and have plans in place to manage any issues which arise whilst 17 per cent say they have taken very little proactive action to manage corporate reputation.

Neil McGill, corporate finance director with BDO, said: “Small and mid-cap quoted companies are right to be conscious of the importance reputation management can have on value. There is a substantial value placed on reputation for any listed company as perception is often as important as reality in assessing the worth of a business.

“There are well documented cases of companies that have failed because of an inappropriate remark by a CEO, a product being withdrawn, or in the internet age a rumour developing online that goes viral which seriously damages a company’s reputation. All companies listed or not, must be aware of the importance of reputation management and have appropriate and effective processes in place to ensure they are not suddenly faced with a crisis which could substantially impact on the their value.”

Interestingly, 53 per cent of companies think that giving the stock exchange more power to intervene or creating specific regulation to improve the chances of successful injunctions would protect small and mid-capped quoted companies from online allegation or rumours. However, 38 per cent think that no action is needed and current market rules and legislation are sufficient.

Mr McGill concluded: “Whilst our survey shows that some listed companies are aware of the risk that poor corporate reputation has on value and are acting appropriately it is clear that many are not prepared for the worst. The inherent volatility of smaller and mid-quoted companies means that they are more susceptible than other companies to reputation issues. It should be an important part of any management teams’ thoughts and actions that they have a plan in place that they can implement in the event of their reputation being damaged.”