Daney Parker, Editor, PRmoment.com
A brand’s reputation is obviously valuable, but exactly how valuable? Immensely, is the short answer according to the latest report from intangible asset specialist Reputation Dividend. This is why corporate communicators must appreciate the full worth of their company’s reputation when they develop messaging strategies for 2018. By the start of the year the economic impact of the confidence inspired by the reputations residing in the minds of investors – the Reputation Contribution – totalled over £1 trillion across the FTSE 350 for the first time; £1,062 billion of market capitalisation and 38% of all shareholder value in the FTSE 100 and 250.
Size doesn’t matter
Within that, the ‘winners’, and the Top Ten in particular, boasted reputations with a combined value of £425 billion. Many of those companies are among the UK’s largest and, whilst size undoubtedly fosters attention and familiarity, it doesn’t automatically dictate reputational success. RELX made the Top Ten with a market capitalisation ranked number 22. Berkeley Group ranked only 94 in market capitalisation, but it has the fifth most economically impactful reputation in the index.
Stormy weather ahead
Discussing future prospects, Simon Cole, founder of Reputation Dividend, says: “Looking ahead, many corporate reputation managers have risen to the challenges created by the uncertainty surrounding Brexit and sluggish corporate performances to maintain the impact of the assets in their charge. However, with the monetary policy party that is quantitative easing coming to an end, labour markets tightening and domestic consumption slowing, companies need even stronger and more resilient reputations to weather the storm ahead.”
How reputation matters
Cole believes that the full value of a company’s reputation can easily be underestimated: “The evidence is clear as to the importance of reputation as a source of shareholder value, but it’s only one part of the story. Over and above what they’re already delivering they’re also a means to grow it. Reputation Dividend’s analysis indicates that an uplift in the underlying reputation strength of only 2.5% will, on average, deliver more than 1% rise in market capitalisation. That equates to an average return on the investment of £300 million for a FTSE 100 company and £26 million for a mid-cap. Clearly, the rewards are considerable for what amounts to only a relatively small uplift in a company’s standing.
“Using corporate reputation as a strategic asset to build corporate value is not just about being perceived ‘only more so’, it’s about being perceived for the right things ie, the component parts of reputation. It’s all well and good being known but unless the company is known for what matters most to the investment community it won’t have the necessary traction. And what matters is changing constantly as investors respond to different circumstances, seek to mitigate risk and hunt for value opportunities.”
Key reputation drivers
Discussing the company strengths that communicators should focus on when building its reputation, Cole says: “Reputation Dividend’s analysis shows that the greatest returns heading into 2018 will be delivered by improvements to perceptions of long-term value potential, attractiveness to talent and innovation. Attention to other reputational factors will pay back too but to lesser degrees. For example, improvements to perceptions of companies’ prowess with regard to matters corporate and social responsibility will produce a return, but only around 40% of the rise in comparable uplifts in perceptions of the lead drivers.”
Cole concludes that the key for any individual company is to understand the structure of its “unique reputational footprint”. He explains: “This provides the evidence as to how perceived strengths, weaknesses and opportunities for enhancement are filtered through the lens of investor interest. Armed with that it will be in the strongest position possible to construct the messaging platform necessary to optimise the economic benefit of what is, after all, one of the company’s most precious assets.”
Background Founded by ex-Interbrand specialists and a team of analysts, Reputation Dividend is an index of the financial value of corporate reputation as measured as a percentage of market capitalisation. This is the 11th Annual Report, covering some 160 of the largest companies in the UK. The 2018 UK study was run in parallel with its sister US study, and is based on data reported from late 2017 through to the start of 2018.
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