By Simon Cole, Founding Partner, Reputation Dividend
The idea that corporate reputations rank among industry’s most precious assets is no longer the subject of serious debate. Their impact is extensive, widely recognised and broadly felt, and the investor confidence many of them are supporting is directly responsible for enormous amounts of shareholder value around the world; $4,890bn of the gross market capitalization of the S&P 500, £986bn of the FTSE 100 and even in less well-developed markets such as Brazil’s IBOVESPA where they’re adding close to $186bn of shareholder value alone.
Well constructed corporate reputations provide many benefits including, most recently, helping to fend off concerns created by lacklustre fundamentals and the uncertainty produced by events such as Trump’s election in the US, the Brexit vote and May’s failure to secure a solid mandate in the UK, to help fuel the rise in equity values evident since early 2016. In the face of low yielding bonds and debt assets all the evidence suggests that investors have been putting some of their concerns on hold and opting for greater volumes of equities instead.
As a result, there has been a marked dislocation in the markets and Reputation Contributions – the proportion of companies’ market capitalisations accounted for by their reputations – have, in many instances, risen as the post-election(s) ‘wall of cash’ stirred up increasingly frothy valuations. In the UK alone, the volume of market capitalisation attributable to companies’ reputations grew by 3.4% points to an average of 39.0% between March 2016 and March 2017. A Brexit bubble (?). Similarly, although the average contribution remained steady at 20.6% across the S&P it represented a real term rise of up to 3.6% points compared with where it was looking to be had Clinton won. The difference, the ‘Trump bump’, amounted to close to $1 trillion of additional shareholder value.
Shareholder Value Development in the World’s Leading Indices:
Overall, the economic impact of company reputations rose in four out of five (79%) FTSE 100 companies and ahead of where it was going in response to a Clinton victory in nearly three out of every four (72%) S&P 500s.
While this reflects well on many stewards of corporate reputation, and points to the real and important impact their work is having, reputation value is by definition ‘value at risk’ and, in the increasingly uncertain world we’re finding ourselves in, ‘value at greater risk’.
Looking ahead, the answer to optimising the economic impact of individual company reputations lies in delivering the messages that not only play to strengths and resolve weaknesses but most importantly, match prevailing investors interests. As markets evolved since the start of the decade the focus of attention switched from ‘defensive’ characteristics where impressions of ‘quality of leadership’ and the ‘long-term investment potential’ to ‘growth’ factors like ‘innovation’ and ‘quality of marketing’ as the upturn loomed before, as now, where ‘risk aversion’ qualities such as ‘ability to attract talent’ have taken centre stage.
In the highly challenging and worryingly volatile economic environment we’re now in, reputation management has become more complex, suggesting that a more analytical, empirically-based approach is required to navigate the changing landscape. Communication professionals can take a lot of credit for increasing the effectiveness (and so value) of the assets in their charge so far – and feel justifiably proud in the return on the investment in their function – but at the same time, they have to bear in mind that their success is only work in progress. Social, geo-political, and economic uncertainties are creating new demands on companies’ reputation assets that are, in turn, ramping up the importance of putting even more effort into identifying the drivers and messaging each reputation needs to succeed. With PR driving corporate narratives and storytelling, prioritising focus and content around corporate messages based on market driven evidence will offer the best protection for the changes ahead and provide the accountability needed at board level.