The two retail companies picked are Walmart and Costco whose 2017 Financial statement links are provided below: WALMART https://www.nasdaq.com/symbol/ wmt/financials?query=income- statement COSTCO https://www.nasdaq.com/symbol/ cost/financials?query=income- statement Both organizations are well known brands and position themselves well with their customer base. Walmart’s value proposition is “We save people money so they can live better”. On the other hand, Costco’s value proposition is “All-in-one convenience and everyday affordability”. Both retailers focus on cost saving for their customers. Looking at their financial statements and by analyzing them a few key areas are evident when comparing the two organization. Looking at the current ratio and quick ratio we can determine the short-term solvency of each organization. The current ratio can be determined by dividing the assets by the liabilities. Walmart’s current ratio sits at 0.86 while Costco’s sits at 0.99. The quick ratio is c...
Is reputation important? Is the reputation of a company more important than the CEO?
This week’s discussion questions will provide answers to these questions. The sections that follow will look at fairness or winning. Which is more important for companies? In the last section we will discuss business goodwill, and can we give a dollar value to business goodwill? Let’s look at business reputation first.
How important is the reputation of a business?
According to Hartman (2005) the success of a business is determined by its reputation and that is from research in 1997. The author future notes that technology and media influence the public making the public more aware of the company’s reputation. Companies see the network information spreading quickly and world-wide. Hartman used an example of the Shell Corporation incident in the United Kingdom. Shell was going to tow a no longer in use oil rig and sink it in North Atlantic Ocean until Greenpeace found out about it. Despite authorizations from the Prime Minister and regulators, the sinking was halted. Shell paid out $200 million to alter the disposal. Shell also lost money from sales, people vandalized fifty service stations, firebombed another, and still another was peppered with gunfire (Hartman, 2005). The Shell Corporation did not have the reputation it needed, and it cost plenty.
Hartman then discussed another incident that occurred one month after the Shell incident. In the Merck situation, a phosphorous trichlorate leak occurred in their Flint River plant in Albany, NY leaving a toxic cloud hovering above the plant. A television crew broadcast this event as forty-five people were hospitalized, and four hundred employees had to be evacuated. People in the community were indifferent or praised Merck for their actions in response to the leak. Hartman attributes this attitude to Merck’s solid reputation. According to the author, Merck established in the 1920s, held a reputation for having core values, integrity, societal contributions, responsibility to its employees, and customers. Frombrun (1996) referred to this as “reputational capital” (Hartman, 2005, p.132). Reputational capital is akin to money in the bank at least as applied to the Merck case. These two examples show the reputation of a business is crucial to its success and survival.
Before we discuss the CEO reputation, the Alva Group says companies should have a strong, positive reputation in order to “mitigate” any negative issues created (Alva Group, 2017). The CEO reputation keeps making headlines today as seen in the Weinstein and Wynn Corporations (Nocera, 2018). Companies need about two to three months to mitigate the negative impact of these actions to keep from losing market shares and damaging their bottom line according to the Alva Group (2017). The Alva Group further states that companies that are not as strong in reputation as their CEO see more risk and volatility. Warren Buffet has a saying about CEOs that is funny but also true:
“I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will” (Buffett, n.d.).
The CEO reputation can positively impact a company especially when the vision matches that of the business according to the Alva Group. In the case of Musk, Bezos, and Cook, it is their profile that adds value to the company. The perception by the public is the company performance is enhanced by these exceptional CEOs (Alva Group, 2017). Yesterday, Saudi Arabia purchased two billion dollars of Tesla stock, and Musk sent a text “considering taking Tesla private at $420” and Tesla stock halted according to NBR (2018). Elon Musk has a strong, positive reputation and therefore, this text set stock prices higher and caused a stir on Wall Street according to NBR. Tesla stock rose in value as a result.
The converse is also true. When Wynn’s reputation fell, the board of Wynn Resorts asked for his resignation to prevent a fiscal disaster and the residual impact has yet to be seen according to Meyer (2018). Wynn stocks fell sharply with the announcement of the CEO’s alleged sexual misconduct and steps were taken to mitigate the damage quickly (Meyer, 2018). What these examples show is when the CEO reputation is positive and congruent with the vision of the company, the company benefits exponentially. Strong company reputation can mitigate the negativity of a CEO for two to three months (Alva Group, 2017).
Warren Buffet has a quote that more CEOs should follow:
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently” (Buffet, n.d.).
Is it better to have the reputation of being powerful or of being fair? For example, do you want to be insured by a company that always wins, or by an insurance company that is willing to allow the benefit of any doubt?
Truthfully, I would prefer to be insured by a company that allows for benefit of anydoubt because they value people versus money. A company that always wins might be willing to take more risks and do things that are unethical for the sake of the dollar. We learned about having the customer as the “ends” versus a means to the end and with an insurance company values the customer, the mission and vision keep with conducting business accordingly (Business Ethics, 2012).
Goodwill is the technical word for the asset of a company being worth more than the sum of its parts. How would you measure the Goodwill of a company in dollar figures?
According to Business Goodwill (n.d.), and using the tool, one can use the following equation to compute the actual dollar amount of Goodwill:
Business Worth = Assets plus Goodwill, so solving for Goodwill
Business Worth/ Assets = Goodwill (in dollars)
The amount may then be amortized for ten to thirty years as per GAAP according to Business Goodwill (n.d.).
In closing, I’d like to use Warren Buffet’s (n.d.) quote:
“When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the
reputation of the business that remains intact.”
References
Buffet, W. (n.d.). 107 Profound Warren Buffet Quotes: Learn to Build Wealth. Sure Dividend.[Web log comment]. Retrieved from https://www.suredividend.com/
Business Ethics (2012). This book is licensed under a Creative Commonsby-nc-sa 3.0 license. Retrieved from http://2012books.
Business Goodwill. (n.d.). ValuAdder. Retrieved from http://www.
Business Goodwill definition. (n.d.). Retrieved from http://www.businessdictionary.
Hartman, L. P. (2005). Perspectives in Business Ethics,3rd Ed. McGraw-Hill/Irwin, NY
Meyers, L. (2019, January 30). How Bad Will It Get for Wynn Resorts, Limited Stock? InvestorPlace. [Web log comment]. Retrieved from https://investorplace.
NBR. (2018, August 7). Transcript: Nightly Business Report – August 7, 2018. Retrieved from http://nbr.com/2018/08/07/
Nocera, J. (2018, February 7). A #MeToo Tale of Two Corporate Boards. Bloomberg Opinion.{Web log comment]. Retrieved from https://www.bloomberg.com/
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