financial capital
Financial capital (also simply known as capital or equity in finance, accounting and economics) is any Economic resources, economic resource measured in terms of money used by entrepreneurs and businesses to buy what they need to make their prod ...
,
social capital
Social capital is a concept used in sociology and economics to define networks of relationships which are productive towards advancing the goals of individuals and groups.
It involves the effective functioning of social groups through interper ...
and/or
market share
Market share is the percentage of the total revenue or sales in a Market (economics), market that a company's business makes up. For example, if there are 50,000 units sold per year in a given industry, a company whose sales were 5,000 of those ...
resulting from damage to an organization's reputation. This is often measured in lost
revenue
In accounting, revenue is the total amount of income generated by the sale of product (business), goods and services related to the primary operations of a business.
Commercial revenue may also be referred to as sales or as turnover. Some compan ...
, increased operating, capital or regulatory costs, or destruction of
shareholder value
Shareholder value is a business term, sometimes phrased as shareholder value maximization. The term expresses the idea that the primary goal for a business is to increase the wealth of its shareholders (owners) by paying dividends and/or causing th ...
sustainability
Sustainability is a social goal for people to co-exist on Earth over a long period of time. Definitions of this term are disputed and have varied with literature, context, and time. Sustainability usually has three dimensions (or pillars): env ...
, poor quality, and lack of or unethical
innovation
Innovation is the practical implementation of ideas that result in the introduction of new goods or service (economics), services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a n ...
can all cause reputational damage if they become known.
Reputational damage can result from an adverse or potentially criminal event, regardless of whether the company is directly responsible for said event (as was the case of the Chicago Tylenol murders in 1982). Extreme cases may lead to large financial losses or
bankruptcy
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the deb ...
, as per the case of
Arthur Andersen
Arthur Andersen LLP was an American accounting firm based in Chicago that provided auditing, tax advising, consulting and other professional services to large corporations. By 2001, it had become one of the world's largest multinational corpo ...
.
Reputation is recorded as an
intangible asset
An intangible asset is an asset that lacks physical substance. Examples are patents, copyright, exclusive franchises, Goodwill (accounting), goodwill, trademarks, and trade names, reputation, Research and development, R&D, Procedural knowledge, ...
in a company's financial records. Hence, damage to a firm's reputation has financial repercussions. Minor issues can be amplified by external social processes which lead to even more severe impacts on a firm's position.
Examples of reputational damage
Wells Fargo
Wells Fargo
Wells Fargo & Company is an American multinational financial services company with a significant global presence. The company operates in 35 countries and serves over 70 million customers worldwide. It is a systemically important fi ...
was exposed for opening millions of unauthorized bank accounts in 2016. This was done by the firm's retail bankers, who were encouraged or coerced by some supervisors.
The CEO ( John Stumpf) and other executives were dismissed. Regulators subjected the bank to fines and penalties, and customers reduced, suspended, or discontinued activities with the bank. The company suffered from heavy reputational damage and financial losses.
Reputational risk was further worsened in 2019 when new legislation was introduced by the House of Representatives. The new legislation uncovered Wells Fargo's practice of offshoring thousands of American jobs and forcing soon to be unemployed workers to train their foreign replacements.
Wells Fargo reputation was further damaged when an Indian Wells Fargo executive was caught urinating on a fellow passenger on an international flight, and again when an employee died at her desk and no one noticed for over 4 days until a foul smell caused employees to complain.
Toyota
Toyota
is a Japanese Multinational corporation, multinational Automotive industry, automotive manufacturer headquartered in Toyota City, Aichi, Japan. It was founded by Kiichiro Toyoda and incorporated on August 28, 1937. Toyota is the List of manuf ...
recalled 8 million vehicles worldwide and froze the sales of eight models in the U.S. in January 2010 amongst pressure from the public, industry regulators and the media. By company estimates, Toyota lost approximately US$2 billion due to the recalls and subsequent lost sales. Additionally, Toyota was fined US$16 million for failing to report the issues promptly and endangering lives.
More tangible financial harm became evident in 2014, when Toyota and the U.S. Justice Department agreed on a settlement of US$1.2 billion and a public admission of guilt from Toyota for neglecting the defects. The reputational aftermath of these events was measured by
Rasmussen
The surname Rasmussen () is a Danish and Norwegian surname, meaning ''Rasmus' son''. It is the ninth-most-common surname in Denmark, shared by about 1.9% of the population.
Boeing
The Boeing Company, or simply Boeing (), is an American multinational corporation that designs, manufactures, and sells airplanes, rotorcraft, rockets, satellites, and missiles worldwide. The company also provides leasing and product support s ...
737 Max jet crashed in 2018 in Indonesia killing 189 people then in 2019 another jet crashed killing 157 people. Boeing initially blamed lack of training and pilot error. Later it was discovered the aircraft had a secret pitch adjustment system called MCAS that would override pilot input. This was never disclosed to the operators or pilots. It was discovered that Boeing had offshored the software development to low pay overseas Indian software programmers with no experience in flight critical code. Boeing, grilled in congress for safety lapses, eventually fired the CEO for putting "profits ahead of safety". The planes were grounded for over a year while defects were corrected and airworthiness could be re-certified. He was replaced by then Boeing chairman Dave Calhoun. In 2024 a door plug fell off a Max 737 airplane operated by Alaska Airlines. United Airlines - one of the major customers of Boeing stated they no longer have confidence in Boeing to meet its contractual obligations. Southwest Airlines stated they were turning to Airbus - a Boeing competitor - for new airplanes. The persistent and ongoing quality lapses have tarnished Boeing's reputation.
"The 737 MAX crisis severely damaged Boeing’s reputation and eroded trust among key stakeholders, including airlines, passengers, regulators, and the general public. The accidents and subsequent revelations about the aircraft’s design and certification processes raised questions about Boeing’s commitment to safety and transparency."
Reputational risk management
Proposed frameworks to manage reputational risk include:
* Systematically tracking evolving stakeholder expectations.
* Identifying stakeholder risk factors as part of a general risk management process.
* Transforming risk management processes to become more proactive rather than reflexive.
* Regularly auditing the catalysts of corporate reputations using the most recent reputation monitoring technologies and services.
See also
*
Audit
An audit is an "independent examination of financial information of any entity, whether profit oriented or not, irrespective of its size or legal form when such an examination is conducted with a view to express an opinion thereon." Auditing al ...
*
Center for Audit Quality
Center or centre may refer to:
Mathematics
*Center (geometry), the middle of an object
* Center (algebra), used in various contexts
** Center (group theory)
** Center (ring theory)
* Graph center, the set of all vertices of minimum eccentrici ...
Risk management
Risk management is the identification, evaluation, and prioritization of risks, followed by the minimization, monitoring, and control of the impact or probability of those risks occurring. Risks can come from various sources (i.e, Threat (sec ...
Risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...