Almost all the value in a company is invisible
Intangible assets such as intellectual property, customer base and brand now account for over 80 per cent of total corporate value, compared to under 20 per cent 40 years ago. The things that are least visible are the most critical to a company’s survival. Taking care of the intangibles requires the right approach.
The biggest intangible is probably reputation. It’s hard won and easily lost. Corporate history is littered with examples of companies that fell from grace because of a loose comment, a bad customer experience, or a management mess-up. Remember Gerald Ratner’s unguarded remarks about his jewellery, Hoover’s free flights fiasco or the demise of Comet.
Understanding the value of reputation should be drilled into all employees from the executives to those on the shopfloor and a culture should be established that seeks to protect it. This is the challenge for boards, to find ways to understand and influence the factors which affect culture and behaviours in their companies.
Get the culture right and everyone pulls together to build a great reputation. Get it wrong and the company’s reputation and brand will sink like a stone very quickly. Today it really can take seconds for a reputation to be destroyed. In the age of social media one wrong foot and a company can find its reputation very rapidly taken down.
There is a flip side of course. Deliver a first rate service or respond swiftly and positively to a complaint and social media will praise you equally fast.
Why is reputation so important? In marketing terms success is measured by long term customer patronage. Customers will only keep coming back and recommending a company if they believe in the good the company does. And that is reputation.
Behaviours, values and culture in companies are under scrutiny everywhere right now. The Prime Minister is considering how to tackle issues such as spiraling executive pay and representation around the boardroom table. The Business Select Committee has announced its inquiry on corporate governance, focussing on executive pay, directors’ duties, and the composition of boardrooms, including worker representation and gender balance in executive positions.
With such scrutiny it should be hard for companies to ignore the issue of culture. Many already do lots of good things and encourage their workforces to ‘bat for the team’. But there are also companies where the behaviours are suspect or where not enough attention is paid to the issues that directly affect reputation and the chances of long term success.
For many companies their internal communications department plays a vital role in building cooperation and advocacy among colleagues, a sense of being part of the corporate journey, of making a difference and of sharing in the outcomes. An engaged workforce is key to building reputation and long term success.
As much as the senior management will use all the tools in the communications kitbag to win support among investors, media, sales agents and so on, how the workers at the sharp end interact with customers, suppliers, even their friends and family speaks volumes about the culture at the company.
Long term corporate value may be mostly made up of intangibles but the tool is there to improve visibility. Culture is the beacon that adds the necessary colour.