Holmes Report 04 Jul 2011 // 11:00PM GMT
The corporate reputations of companies listed on the London Stock Exchange account for over £460 billion of value, according to a new study published today by Echo Research in association with Bestra Brand Consultants. The companies believe that their Reputation Dividend study is the first index of the financial value of corporate reputation measured as a percentage of market capitalization.
Reputation Dividend is a diagnostic tool for CEOs, finance directors and those responsible for corporate communications, brand management or investor relations, and offers an objective means to monitor and manage corporate reputation based on an understanding of the financial value and proportion of market cap attributable to corporate reputation; the value of a company’s corporate reputation relative to that of its peers and competitors; the isolation of nine principal components of reputation value; and measurement of the return on investment in corporate brand communication.
Analysis found that on average, corporate reputation is delivering proportionately more value to FTSE100 companies (c32 percent of market cap) than to FTSE250 ones (c14 percent). The study found that Royal Dutch Shell, Unilever, BG Group and Tesco are the top performers in terms of reputational contribution to market capitalization in 2010. Others in the top 10 included BHP Billiton, British Sky Broadcasting, Centrica, Rolls-Royce, GlaxoSmithKline and Diageo.
The study also suggests that the economic contribution of the corporate reputations of Britain’s largest public companies has increased for the third year running. Across the FTSE350 it now accounts for around 30 percent of all shareholder value, a rise of 3 percentage points over the last 12 months.
According to Sandra Macleod, chief executive of Echo Research, “Metrics abound but there is nothing that offers any insight into the immediate economic impact of corporate reputation. We believe this new study provides the missing link, connecting reputation drivers to shareholder value, and will become a major source of intelligence on which reputational factors contribute value for quoted businesses.”
The ten most valuable corporate reputations are contributing on average 48 percent to shareholder value (as measured by market cap). That represents a combined value of some £228bn. By contrast, the ten least effective reputations ( alist that includes Yell Group, Sports Direct, Enterprise Inns, UTV and Cable & Wireless) eroded value in 2010, by on average 10.7 percent of market cap worth a total of £720m.
Reputation contributions vary considerably by business sector. They range from an average 51 percent in the oil and gas sector to 16 percent in technology and utility companies.
Says Simon Cole, managing partner at Bestra, “Our analysis shows that building corporate reputation will directly increase shareholder value; stronger reputations will increase the confidence the investment community has in the ability of companies to deliver the economic returns they promise. On average, 5 percent improvement in the strength of a reputation will lead to an increase of 1.8 percent in market cap in FTSE100 companies and 2.0 percent in FTSE250 companies.”
Within corporate reputation as a whole there has been a marked change in the individual attributes that influence the investment community. Says Macleod, “Last year, at the height of the recession and all the associated uncertainty, the most potent elements of reputation were the more pragmatic qualities of ‘value as a long term investment’, ‘financial soundness’ and ‘quality of goods and services.’
Improvements in perceptions of those factors delivered the greatest value growth. Now, with investors’ uncertainty having settled a little, it appears that factors such as ‘quality of management’ and ‘environmental responsibility’ are of increasing importance, as evidenced by BP’s Deepwater Horizon disaster last year.”