The value of your businesses reputation

How much is your businesses reputation worth?  How much is the goodwill you have with your customers worth? While profit and loss are important and cash flow is the life blood of any business there are items that will never show up on your income statement or balance sheet.

Recently we learned that VolksWagen has been in the headlines due to a scandal involving their vehicles.  The company has admitted to cheating on emission tests.  But how could they cheat on a test performed by another entity or organization?  While details are still not known, what has come to light is that the cars were programmed to 'know' when they were being tested and would change their operating mode to be able to pass the test.  Once this mode is disabled the vehicle put out 40 times more pollutants than are allowed. This has been dubbed a 'cheat device' by some.  

This kind of engineering is not possible by one rogue engineer.  Several individuals would have to be on board with this.  Whether anyone at Volkswagen was concerned or dissented is unknown but it would seem that nothing prevented this engineering effort.  Getting a good reputation takes time and trust, losing it takes only days or minutes.  As of today, Volkswagen's CEO has resigned and the company is liable to pay fines or have to recall their vehicles which will affect their financial results.  Customers who really believed their marketing about 'clean diesel' will look elsewhere for their next vehicle because customers would no longer see value in the brand, their reputation and will take their goodwill elsewhere.

The Pope in his address to Congress said "Business is a noble vocation, directed to producing wealth and improving the world. It can be a fruitful source of prosperity for the area in which it operates, especially if it sees the creation of jobs as an essential part of its service to the common good".  But perhaps in all the metrics, analysis, profit margin, shareholder value and revenue growth we have forgotten the one underlying truth in all business relationships, that it is based on human relationships.  Human relationships are still based on trust. 

In business a set of beliefs, values and attitudes held collectively is the businesses culture.  These can be set by leaders either by leading by example and/or rewarding behavior that is ethical or provides honest and excellent customer service.  Continuously reinforcing this strengthens the culture.  Employees see this is what is expected and trust that this is how to act.

It's surprising how the most serious loss to Volkswagen isn't just money, but the assets that never showed up on their balance sheets.

Thanks for your interest and we hope to continue to have meaningful conversations.