In the complex landscape of modern business, where legal frameworks and ethical considerations are interconnected and increasingly important, the role of compliance and the oversight function of boards are integral in sustaining the integrity and reputation of organisations.
Company reputation has the power to shape public perceptions, support strong stakeholder relationships, and ultimately impacts a company’s ability to sustainably grow over the long term. No matter the industry, product, customer, or size, a company’s brand as the physical manifestation of that reputation is increasingly its single most important and valuable asset.
Companies are generally aware of the penalties that may apply when they don’t comply with legal or regulatory requirements – in the form of fines, sanctions, or legal action. But few companies consider the impact on their most valuable intangible asset – the brand.
One of the reasons may be that companies don’t typically monetise the value of their reputation. According to Brand Finance, the world’s leading brand valuation consultancy, the global top 500 most valuable brands were worth a cumulative $8 trillion in 2023. In addition to fines or other penalties, that’s $8 trillion at risk when companies don’t comply with the legal, regulatory, or ethical standards expected of modern organisations today.
Brand and integrated risk management go hand-in-hand
Let’s demonstrate this by way of two well-known case studies.
Wells Fargo, a leading US financial services company, was embroiled in a scandal in late 2016 when it became known that employees had fraudulently created an estimated 3.5 million fake accounts to meet sales targets. According to Brand Finance research, the bank incurred an estimated $3.5 billion in direct costs related to this – including fines, legal action, and customer and shareholder compensation.
Beyond this direct impact, Wells Fargo has gone from being one of the most trusted brands with a very strong reputation to having the lowest reputation score of all the big American banks. And the impact on brand value has been even more than the hard costs – dropping from $44 billion in 2016 down to $32 billion by 2023. That’s a loss of $12 billion in intangible brand value, which is more than three times the direct cost of the failure to comply with legal, regulatory, and ethical standards – with a lasting and insurmountable impact on the company’s performance.
In 2018, automobile manufacturer Nissan faced significant reputation damage as a result of misconduct at board level when the chairperson and CEO Carlos Ghosn was arrested on charges of financial misconduct. The case had far-reaching consequences for Nissan. In addition to paying $22 million in fines to Japan’s Financial Services Agency, and $15 million to the US Securities and Exchange Commission (SEC), the consequences of non-compliance with regulatory requirements substantially impacted the company’s leadership, corporate governance, and reputation.
According to Brand Finance’s research, the Nissan brand has lost almost $9 billion in value since this incident – dropping from $19 billion in 2018 to $10 billion in 2023. Five years on, the company’s reputation remains well below industry norms and its financial performance has yet to recover to 2018 levels.
As these two case studies clearly illustrate, reputation risks that shake the business to its core often shake the brand to its core as well. Well-managed reputational risks equal well-managed brands. In fact, integrated risk management and brand management are arguably one and the same.
Why boards should also care about their company’s reputation
Compliance professionals, as custodians of legal adherence and ethical behaviour, have a profound impact on how a company’s reputation is perceived by its stakeholders and the wider public
Yet, risk and reputation management is not simply a business and operational responsibility of management and the compliance team — it is also a governance issue that is squarely within the oversight responsibility of the board.
The oversight function of the board of directors has never been more critical and challenging than it is today. In spite of that, board members are often not that comfortable with the intangible components of reputation. A possible reason may be that reputational risks are all quite difficult to quantify until they materialise, and many of the benefits of a well-managed reputation are intangible and talk to events that may (or may not) happen in the future.
Research, however, tells us that intangible assets have a disproportionate impact on company value – and the potential for the company to continue growing value into the future.
The intangible, or emotional dimensions of reputation include factors such as visibility and accessibility of leaders, as well as the company’s social license, and presence (both positive and negative) in the media. These dimensions tend to be driven by the perceptions and opinions of stakeholders and are often tough to measure, harder to manage, and normally dependent on the ethical and compliant behaviours of people (especially leaders) in the company.
It is this latter part of reputation risk management that, in my experience, is the hardest part to quantify and explain to stakeholders.
Progressive companies increasingly embrace reputational risk management as part of their commitment to ethical practices and cultivating purpose-led values and culture. However, there are still far too many organisations that view compliance and reputational risk management in a negative light – as bureaucracy, complexity, or, at worst, something to be worked around. Think of recent South African examples such as Steinhoff or Tongaat Hulett, where non-compliance led to devastating consequences for the companies, their stakeholders, and their reputations.
There is an opportunity to further evolve the narrative on compliance and reputational risk management by focusing on the total value that is protected when companies adhere to ethical, legal, and regulatory requirements. Brand Finance values South Africa’s 100 most valuable brands at around R695 billion, and leaders need to understand the potential for significant impact on one of their most valuable assets – their brand.
Reframing compliance and the role of the board
Compliance professionals need to be recognised for their role in safeguarding brand value for their companies. The long-term impact of reputation risk goes beyond fines, bad press, or legal actions, and without a strong compliance function, an organisation is like walking blindfolded: any step may lead to disaster.
Board members, on the other hand, need to become more comfortable with the intangible dimensions of reputation. A possible way of doing this is by quantifying reputational risk in terms that boards understand – ideally by putting a financial value on the reputation (through brand) and the value to be gained, or potentially lost, through a reputation event.
A more engaged board, when it comes to dealing with reputational matters, sends a clear message to management and employees that comprehensive reputational risk management is not an impediment to the conduct of business nor a mere supplement to a firm’s overall compliance programme.
It is instead, an integral component of strategy, culture, and business operations.
Jenny Moore is the founder and chief executive of Elephant Bush Consulting and an associate director at Brand Finance Africa. A seasoned strategist with more than 20 years’ experience of working with multinational and local market leaders, she holds a Master’s degree in Corporate Strategy (GIBS). She brings a combination of theory, strategy, and practical implementation expertise to projects – with experience spanning strategy formulation and organisation alignment; sustainability and shared value operationalisation; research, measurement, and reporting frameworks.
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