Can a value be assigned to reputation?

A summary of a report suggesting the corporate reputations of the companies comprising the FTSE 350 indices are worth £790 billion collectively

Corporate reputations contributed £790 billion of value to investors FTSE 350 stocks and now comprise more than one third of the market capitalisation across the two main stockmarket indices, a new study has revealed.

The 2016 UK Reputation Dividend Report estimates that 38 per cent of the market capitalisation of the FTSE 100 index is directly attributable to corporate reputations, up from 30 per cent a year earlier.

However, the impact declines in the FTSE 250 index, where just one quarter of its market capitalisation is linked to corporate reputation, up from 16 per cent a year earlier.

The survey, which was conducted on behalf of Reputation Dividend, found ‘all the signs point to the fact that reputation played a substantial part in mitigating downward pressure on share prices and stemmed otherwise larger falls in the indices in the latter half of the year’.

It estimates that, without the ‘uptick in reputation impact’, the lead index could have ended last year as much as ten per cent lower while the FTSE 250 index could have fallen by an additional seven per cent.

The report says that ‘reputation value is created when recognised strengths and qualities of individual companies coincide with investor interest’.

While these perceived ‘strengths and qualities’ will differ between companies, investor interests should be broadly consistent across sectors. As a result, the single most valuable contribution to corporate reputations is the impression of ‘financial soundness’.

Indeed, the report suggests that ‘financial soundness’ is responsible for one fifth (21 per cent) of the total reputation value of the FTSE 350.

The ability to ‘attract, develop and retain talent’ is seen as the second biggest contributor to corporate reputation, adding 14 per cent to the pot, while the ‘quality of leadership’ is the third biggest factor, contributing 13 per cent to reputation value.

‘Uncertainty about the world economy and the pace of recovery at home has refocused attention on corporate leadership and financial robustness,’ says the report.

While many of the FTSE 350 companies invest heavily in community projects and are keen to highlight their initiatives in environmental responsibility, this remains one of the lesser components of corporate reputation. Contributing £53 billion to aggregate reputation value, it has less impact than ‘quality of goods and services’ or ‘quality of marketing’, which contributes £57 billion.

However, the report found that the economic impact of corporate responsibility ‘grew more than for any of the other headline factors tracked’ over the past year, adding: ‘It would appear that the investment community finally has started to appreciate the commercial opportunities and reputation risk mitigation inherent in strategically attending to matters of sustainability and community and environmental responsibility.’

The report concludes that reputation managers need to focus on three areas ‘if the assets in their charge are to be managed to best effect’.

Reputation managers should ‘get back to the business of proactively managing corporate reputation’; ‘pay attention to how stakeholders view their competitors’; and ‘understand what matters most to their stakeholders’.