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London Evening Standard: Damage question

London Evening Standard: Damage question

“Shell… everyone knows its reputation is still in tatters and it will take years for the company to rehabilitate itself.”

Anthony Hilton

20 August 2004

Posted 22 August 04

TERRY Smith of broker Collins Stewart explains that he is suing the Financial Times for around £240m because that is the amount by which his company’s stock market capitalisation fell after the FT published various contested allegations about his firm. That drop in market cap is therefore the exact measure of the damage to his firm’s reputation.

This raises an interesting issue. Paul Goldsmith, a consultant and academic at the Cass Business School who specialises in reputational issues, believes strongly that a price cannot be put on a company’s reputation because it is based on so many subjective judgments from so many different interest groups each with a different agenda, and market cap is certainly no proxy for these things.

He points out that the Shell share price is pretty well back now to where it was before the scandal broke over its reserves figures. So the market cap measure says there is no lasting damage to Shell, whereas everyone knows its reputation is still in tatters and it will take years for the company to rehabilitate itself.

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