Tag Archives: goodwill

Replying to William’s question–Goodwill and Reputation Management

Frequent Crisisblogger commenter William Cummings (vacation lane blog) asked about the relationship between the accounting of “Goodwill” and “reputation management.” I started to answer but decided to make it a post. Here’s to you William:

Not  being anything resembling an accountant my understanding that “Goodwill” is sometimes shown as an asset on a financial statement as a way of capturing the intangible but very real value related to the company’s image, brand value and/or reputation. The reality is that a business is or should be made up of much more than its physical assets. In fact, I argued in a much earlier book, that the real value of a business ought to be measured by its relationships–the number, quality, and potential revenue and profits they and those they connect with represent. There are a number of companies today that measure “brand value” by looking at these things and making some financial determination of what the company is worth based on its position in the market.

Reputation management can be seen as those things that management does to protect and enhance its brand value. Company executives do lots of things to protect and enhance their revenues and profits and these are traditionally seen as the primary and appropriate focus of management. But brand value goes beyond sales, costs and margin. While you may be able to increase net margin by sourcing a better supplier, or increase sales by a more effective marketing strategy, enhancing and protecting brand value is a little more complex.

Interbrand does a good job of analyzing brand value. But one of the most useful stories and analysis I’ve seen of this is from 24/7 Wallstreet where they present the 15 most hated companies in America.

One thing that will become clear from looking at these ways of measuring brand value is that it does not equate sales and profitability. In fact, it is quite possible to be ungodly successful in sales and profits and have a really bad public reputation. The two often go together as I’ve commented here several times–look at what happened to Microsoft when they became totally dominant in the software business. They had a terrible time until Google showed up and started competing–now Google faces some of the same problems because of their dominance in their sphere. When Toyota approached and then passed GM as the biggest carmaker in the world I warned (in 2007) that they should watch out because they were susceptible to reputation attacks based on their leading role. Success can really hurt.

William, I’ve gone far beyond your question–but reputation management obviously is a big deal. As the article that prompted your question points out, it is now CEO’s biggest concern. Ultimately, however, the solution is simple. Be trustworthy yourself, and make certain every day that your organization does all it can to earn trust from those people on whom you depend for your future.