The combined values of corporate reputations in the FTSE350 is worth nearly £1 trillion to the UK economy. The 2017 UK Reputation Dividend Report claims that 39% of all shareholder value is derived from corporate reputation making the combined reputational value of the FTSE350, at the end of January 2017, a record £986 billion.
The Reputation Dividend report puts Royal Dutch Shell in top place, displacing Unilever with GSK showing the biggest gain up from 40 to fifth. Diageo is another big mover improving from 18 to sixth with BP bouncing up from 19 to eighth. Across the 350 companies analysed the reputation contribution to value range from below zero, where they actively destroy value, to highs of more than 50%.
The report estimates that reputation contributes 57.6% of Royal Dutch Shell’s reputation while second-placed Unilever’s is worth £57 billion or 56.3% of its market capitalisation.
The contribution of corporate reputation varies significantly across indices, sector and companies with the most interesting being that, on average, reputation contributes 42% of the market capitalisation of a FTSE100 company, but just 25% of a FTSE250 company. Is it perhaps something to do with greater levels of awareness, knowledge and understanding of larger companies? The report seems to imply so as it says size appears to be “undoubtedly one of the factors behind the effectiveness of a company’s reputation.” Its analysis also shows that the top quartile of the FTSE 100 has an average value of 46% while the bottom quartile is 9% points lower at 37%. Similarly, the average in the top quartile of the FTSE 250 is 31% compared with 23% at the bottom.
“Understanding the importance of this asset called reputation is essential as so much confidence and ultimately, behaviour, are tied up in it. Putting a price on reputation helps to focus management attention, and insight into which particular elements create or destroy it helps to establish priority areas to further secure its impact going forward,” said Sandra Macleod, director, Reputation Dividend.
Reputation Dividend uses nine factors to calculate the value of reputation, each of which is determined by investor sentiment. A company’s ability to attract talent is currently the biggest factor impacting its reputation (at 43%), with innovation (42%) a close second.
The full Reputation Dividend report has a more detailed explanation of the nine factors and how the valuations are calculated each year.
The Reputation Dividend report is now in its tenth year and is a great piece of work that I look forward to being published every year. However, its focus is very much on corporate reputation amongst investors and doesn’t therefore take into account that every company has multiple stakeholders and that its reputation might be very different amongst different stakeholder groups.
That said it provides more useful data regarding the importance of corporate reputation and the need for boards and CEOs to take professional counsel on the reputational implications of their decisions – before they make those decisions – and not simply expect corporate communications and public relations to be simply agents who communicate decisions they’ve already made.
It also helps illustrate why company’s need robust public relations strategies with measurable objectives that are designed to have a measurable effect on corporate performance.