UK corporate reputations are now valued at £1,062bn, according to the 2018 Reputation Dividend Report. Brexit and economic uncertainty mean that investors and stakeholders are putting more emphasis on corporate reputations. After all, a good corporate reputation inspires confidence.
By the start of 2018, the influence of corporate reputations was directly responsible for an average of 38% of market capitalisation across the FTSE 100 and 250 – adding 5% more shareholder value than last year. Its impact is greater for the FTSE 100 index than the FTSE 250. The reputational value of the FTSE 100 index rose 8.5 per cent over the past year against 1.7 per cent for the FTSE 250.
This really highlights that corporate reputations are major drivers of tangible monetary value. How investors think and feel about individual companies, over and above the financials, affects their valuations. The degree to which of course varies according to sector and company, and by the impact of different reputation drivers.
Unilever and Shell lead the way
This year, corporate reputation is currently Anglo-Dutch giant Unilever’s most valuable asset. It’s worth a massive £65 million (56.7 per cent reputation contribution). This is despite a failed Kraft Heinz bid and is instead attributed to the chief executive’s plans for sales growth improvements and pipeline innovation.
Shell, which last year had the most valuable corporate reputation, slips to second place. The oil giant’s reputation value is now £117 million (55.3 per cent). Drinks firm Diageo and pharma group GSK, have similar market capitals of more than £33 million, reputation contributions, at 50.4 per cent and 50.3 per cent respectively. House builder Berkeley comes fifth, with one of the smallest market caps in the FTSE 100 at around £2.8 billion, of which reputation contributes just over half.
Other companies in the reputation value UK top 10 include oil giant BP, mining corporation Rio Tinto, mining company BHP Billiton, pharma giant AstraZeneca and information and analytics provider RELX.
Corporate reputations – how is reputation value calculated?
The analysis considers nine reputation value factors:
- Quality of management
- Financial soundness
- Use of corporate assets
- Quality of goods and services
- Value as a long-term investment
- Ability to attract and retain talent
- Quality of marketing
- Capacity to innovate
- Community and environmental responsibility
Quality of management is now responsible for 15 per cent of a company’s market capitalisation. This, combined with financial soundness, and use of corporate assets, accounts for 42 per cent of the value of Britain’s FTSE 350 listed companies.
This type of reputation value analysis helps companies to proactively manage their corporate reputations.
It’s clear to see from these examples just how much shareholder value is dependent on corporate reputation and how much is at risk. It also helps businesses to understand what matters most and focus on these nine drivers. Crucially they are just as relevant and important to small and medium sized companies as they are FTSE listed organisations.