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The value of business compliance

By Eric LoeweChief Analyst and Vice President for Customer Support

Business compliance is an essential part of my day-to-day job as Polecat’s Corporate Secretary. It means upholding the values and integrity of the company, achieving more open and rigorous procedures across the whole of the business, and ensuring legal safety. It also means helping our customers achieve good corporate governance through the services we provide.

Why does this matter? Because businesses with a healthy compliance culture protect and grow their value.

As Chief Analyst, I studied the impact of business compliance and the linguistic characteristics of internet commentary as part of the construction of Polecat’s award-winning risk sensing capability.

The discussion around business compliance often connects to execution and the company’s ability to operate – indeed, thrive – as a going concern and return positive value to shareholders. A good earnings season, or a transaction accretive to the company’s financial and strategic goals, often leave visible patterns in reputational discussion. A conversational "shape" if you will.

The opposite is also true. Perceived failures around business compliance can have significant reputational impacts that are often measurable in conversation— as well as cold hard cash (a lot of it, in fact).

Business compliance is a risky game. Polecat’s data shows the measurable impact of non-compliance from two recent high- profile cases.

Tesla and Elon Musk

Trouble started for Tesla when the cultural conversation caught hold of the behavior of its CEO. The business compliance risk discussion was nominal at an average of 54 postings per day from April to July. During that period, Tesla’s stock rose 31%, peaking at $380 on August 7th. However, between the first week of August and early October, the business compliance risk discussion rose quickly to an average of over 400 postings per day off the back of the decisions and behaviors of Tesla CEO Elon Musk—which ultimately landed the company in hot water with the SEC.

In that short period, Tesla stock dropped 32% from its earlier peak, wiping out $18 billion of market capitalization.

While Tesla has reported profits for the quarter ending in September, stock prices have not regained their position at levels witnessed in August, before Musk’s antics. Such is the impact of a corporate leader’s actions on reputation. The restoration of confidence with its investor base requires long-term monitoring and evaluation of ‘business compliance’ risk activity if the company wants to stay its course to come out ahead in the market.

Tesla compliance risk discussion

Plastic World - Complimentary Report

Danske Bank’s money laundering scandal

The risk- oriented business compliance discussion about Danske Bank can be separated into two phases around the same developing story, the company’s €200bn money laundering scandal.

In the first phase, July 4th to early August, the business compliance risk discussion rose to an average of 540 postings per day and Danske Bank’s stock dropped nearly 10%. For the rest of August, things seemed to be levelling off as the stock price began to recover and risk discussion settled.

However, in early September, risk discussion increased again, more sharply than in the first instance. By October 6th, the company’s stock had dropped to DKK 159 – a 25% decrease from before the incident began.

While we all appreciate that the equity value of a company is driven by multiple forces, internal and external, rational and irrational, we have seen this story played out many times before. Often these reputational shifts occur in a surprisingly short span of time, and when connected, either in fact or through perception, to themes like ‘Financial Crimes’ and ‘Enforcements’, there can be a clear loss of market value.

Danske Bank compliance risk discussion

The right tools

In the complex eco-system that is reputation and business compliance, businesses need a way to bring the multiple forces under their control so that they can respond to what’s happening now and build longer-term strategies.

Business compliance is about governance and procedures, but it certainly isn’t static. It’s an evolving, dynamic and volatile space and it needs specialist tools to track and measure it.

Enter RepVault, one of the most innovative and powerful reputation analytics platforms out there. It was built from the ground up based on a decade of corporate reputation and business enterprise experience and a decade of studying the language of reputation and risk in the public domain.

It is uniquely adapted to aid business compliance practitioners to be responsive to the real-time and future-facing dynamics impacting their business or industry and can be set to scan the horizon for specific threats and opportunities ahead.

With Polecat as their partner, our customers confidently create a culture of compliance. They thrive as they get to shape the conversation around their business and protect and grow the company reputation and value.