Hargreaves Lansdown and the value of Corporate Reputation

What is the value of corporate reputation? For most companies it’s a lot more than the revenue stream from a single product. Yet when that product line, after heavy promotion, is shown to be shoddy or poor value, people are much less likely to purchase its other products, so the entire company can be badly affected. Poor media handling of the issue simply adds to the impression that there is something rotten at the heart of the business, and customers may prefer to steer clear in future; it’s why corporate spokespeople need to be properly trained and ready for this sort of eventuality, so their appearances can help minimise damage. The amount of value that can be destroyed is massive, and sometimes out of all proportion. According to a study by the World Economic Forum, corporate reputation accounts for 25% of the market value of a typical company, while other estimates put the figure even higher.  So it needs to be nurtured, with very careful media handling.

Which brings us to the investment firm Hargreaves Lansdown, which had been a big promoter of the controversial fund manager Neil Woodford. It saw the value of its shares fall by £1.6bn, or 14%, over just three days after Woodford announced the suspension of his flagship Equity Income fund at the beginning of June, leaving its investors (many of them HL customers who had thought they were buying into a low-risk fund) unable to buy and sell. HL had cut an advantageous deal with Woodford that meant it made good money from pointing investors in his direction, which led many commentators to suggest it was acting to boost its own coffers, rather than in its customers interests. But those Woodford-related revenues look like small beer compared to the drop in the shareholder value of the company – which could of course recover, but may fall still further. What’s disappointing is the way Hargreaves Lansdown’s high-profile media commentators – usually highly eloquent about almost any and every financial topic, suddenly went quiet after the fund suspension, instead of transparently explaining why they got it wrong, or perhaps even apologising to their investors. A good media spokesperson has to be ready to take the rough with the smooth, and put their head above the parapet if necessary to explain their side of the story – going to ground just suggests to the outside world the problems may be even bigger than they feared, while that valuable corporate reputation is further eroded.