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© 2014 Reputation Dividend
The 2014 US
Reputation Dividend report
© 2014 Reputation Dividend | 1
“...studies like this should focus
the minds of all those in
positions of corporate power”
Sunday Telegraph - Rainmaker
© 2014 Reputation Dividend | 2
Headlines and Highlights
1. Corporate reputations in the S&P500 accounted for nearly $3.7 trillion
of shareholder value at the start of 2014; 21% of the market
capitalization.
2. Walt Disney now commands the most financially impactful reputation
ahead of Apple and Google.
3. Corporate reputations are creating economic advantage across every
industry sector.
4. Corporate reputations are an important source of value growth as
well as value delivered.
5. Companies that align their reputations to investor interests, now
looking to growth-cycle characteristics, will reap biggest gains ahead.
Introduction
The 2014 US Reputation Dividend study summarizes the state of
corporate reputation in America and how it is impacting shareholder
value in leading public companies. It is the seventh annual study and
covers close to 500 of the Nation’s most important corporations.
The Reputation Dividend report provides a uniquely fresh perspective
into how well, or not, corporate reputations are working to the advantage
of their company’s stockholders. It combines headline measures of
reputation strength from survey research with a large number of
published financial metrics to explain the economic consequence for
shareholder value. This is the Reputation Contribution – the proportion
of a company’s market capitalization attributable to its reputation. It not
only confirms the scale of the asset but also reveals important insight
into the bottom line of reputation management and answers to many of
the reputational challenges facing business leaders seeking a more
strategic approach to securing and growing the economic value their
companies’ reputations are returning.
The 2014 US study runs in parallel with our UK study and is based on
data reported up to the beginning of 2014.
© 2014 Reputation Dividend | 3
Overview
1. The corporate reputations of America’s leading companies are
major economic assets. At the start of 2014 they accounted for
nearly $3.7 trillion of shareholder value in the S&P500 alone; 21% of
the total market capitalization.
US stock markets turned in an invigorating performance in 2013 with the
index growing by some 28%. Pre-tax corporate profits were at record
levels – more than 12% of GDP – returns on capital looked high and the
cost of equity low. The recovery was into its fifth year and looked to be on
course. But experts remained puzzled. The prevailing mood appeared to
be more for share buybacks and investment remained stagnant.
The markets continued to be buoyed by the huge volumes of cash
flowing from QE programs, Chinese reserves heading for US markets to
offset the surplus and Japanese investors seeking opportunities in the
face of government bond buy-backs. Despite that, nervousness
remained and was fuelled by mixed signals about corporate performance
and ongoing anticipation of the Fed starting to taper its monthly
purchases of government debt and mortgage bonds.
Chart 1: Reputation Value Growth in the S&P500 - Gross Market Cap
Reputation Dividend’s analysis shows that individual corporate
reputations continued to support investor confidence and create
shareholder value though to a slightly lesser degree than was the case in
2012. The combined value was up - as overall value rose - but the
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Dec07 /Jan08
Dec08 /Jan09
Dec09 /Jan10
Dec10 /Jan11
Dec11 /Jan12
Dec12 /Jan13
Dec13 /Jan14
$b
n
Reputation value Non reputation value
20% 21%32% 27% 22%
16%21%
© 2014 Reputation Dividend | 4
average Reputation Contribution was down 1% point at 21% to a level
almost 2% points below the long-run average.
Regardless of the fact that the average Reputation Contribution closed
the year more than 10% points off the peak recorded in late 2010, the
absolute value of the underlying reputations was only fractionally lower.
Reputations continued to be major drivers of corporate value as ‘normal
business’ began to resume and drivers related to earnings expectations
and the wider economy recovered their influence.
2. Changes at the top of the leader-board as Walt Disney takes a large
bite out of Apple.
Apple’s Reputation Contribution slipped for the third year in succession
as questions relating to aspects of its operation continued to circulate.
Concerns for the working conditions and environmental practices in some
of its suppliers, the long-running legal disputes with Samsung and
persistent worries as to whether the company can continue to revitalize
staid markets with new ideas combined to tarnish a once all-commanding
reputation.
Table 1: The 2014 Top Ten
By contrast, the standing of the Walt Disney Company increased in
response to a string of structurally-based good-news stories. Lone
Ranger aside, the film division turned in a strong performance through a
creative resurgence and three-pronged strategy based on big releases,
animation and low budget originals. A new console platform elevated
Reputation
ContributionChange vs 2013 2013 rank
Reputation
Value
49.8% 2.2% 9 $65,081
49.7% -5.1% 3 $240,011
48.8% -1.5% 5 $184,873
47.1% -7.8% 2 $202,172
46.6% -5.7% 4 $34,300
43.9% -5.0% 6 $101,382
42.9% -4.9% 8 $24,621
42.9% 8.4% 47 $9,125
42.7% -5.5% 7 $53,260
42.4% 13.1% 77 $58,260
© 2014 Reputation Dividend | 5
Disney Interactive. Rising affiliate fees and advertising revenues
advanced the TV division and the wider signs of economic upturn
boosted prospects for parks and resorts. The signals through 2013
pointed to the company having recovered its mojo to take a well-earned
position at the top of the reputation table.
Elsewhere, Reputation Contributions of the leading companies tended to
retreat as evidence as to the wider economic recovery emerged. Only
two, International Paper and Comcast, bucked the trend putting on
substantial increases leaping to 8th and 10th places respectively.
Comcast appears to have encouraged investors through its relentless
drive and Teflon-like ability to prevent criticism sticking. Although no
stranger to controversy e.g. customer satisfaction, questions about
corporate governance and accusations of anti-union sentiment, it turned
around falling video and cable subscriptions, beat off concerns for net
neutrality in the courts and trumped competitive suitors to win Time
Warner Cable in early 2014. As a result, the company’s Reputation
Contribution increased by 13% taking it 67 places up the table.
To a lesser degree, a series of solid results from International Paper
backed up by a clearly articulated strategy designed to compensate
shrinking demand in the US with developing markets such as Russia,
Brazil, India and China, produced an 8% point rise in the company’s
Reputation Contribution. That, in the wider context of small declines was
sufficient to elevate its position 39 places in the overall ranking.
3. Corporate reputations are creating economic advantage across all
industry sectors.
Chart 2: Reputation Contribution by Sector – ICB
0%5%
10%15%20%25%30%35%40%45%
2012-13 2013-14
© 2014 Reputation Dividend | 6
Investors looking at oil & gas or basic materials companies, which
traditionally rely on a combination of economic cycle and a faith in market
evidence, tend to put more store by what amounts to reputation than for
example, with utility or health care companies where performance is
sometimes more predictable.
While the main sector differences were broadly maintained in 2013,
there were movements:
Investors in the oil & gas sector appear to have taken stock as the oil
price stuck and growth flattened. As a result they were looking harder to
the underlying evidence and deferring less to reputation.
Telco investors became similarly less influenced by reputations as
earnings growth became harder to see and pressure on tariffs from, for
example, authorities acting on roaming charges, became greater.
Investors in consumer service companies were encouraged by what
was seen as improving consumer confidence mitigating some of the
‘need for belief’.
4. Over and above being a major repository of shareholder value,
reputation is a means to grow it further.
At the start of 2014, a 5% improvement in the strength of a company’s
reputation could be expected to produce, on average, a 1.5% uplift in the
share price over the year. For the average sized S&P500 that equates to
a $550m uplift in the market capitalization.
Chart 3: Reputation Leverage across the S&P500
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
2012-13 2013-14
Average market cap gain for a 5% increase in reputation strength
© 2014 Reputation Dividend | 7
While the potential to leverage reputation remains considerable, it is
slightly lower than in 2012. Investors continue to be sensitive to
everything that is thought and felt about a company, but as the recovery
becomes more readily evidenced, the opportunity to support confidence
via this more emotional asset has reduced, albeit marginally.
5. Corporate leadership is under increasing investor scrutiny as the
economy recovers and real growth is targeted.
As investors became more secure in the prospects for the recovery,
interest in what makes a difference evolved accordingly. That produced a
number of changes in the relative standing of the individual drivers of
reputation value.
Chart 4: Reputation Value Growth Drivers
The largest increase was in the impact of ‘quality of management’ which
grew to become the single most influential driver at the start of 2014.
Scrutiny of corporate leadership has never been greater which, allied
with the growing tendency in some quarters for shareholder activism, has
increased attention on whether individual leaders are taking full
advantage of the opportunities presented by the upturn.
At the same time, the impact of perceptions of ‘product or service quality’
has diminished as consumers loosen their purse strings.
Elsewhere, ‘financial soundness’ and ‘innovation’ have both become
more influential. The downturn has not been consigned to history, just
yet, and investors are expressing interest in companies that, on the one
hand, they regard as having the foundations necessary to cope what
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2012-13 2013-14
© 2014 Reputation Dividend | 8
could still be a choppy ride for some time yet, at the same time as setting
themselves up for renewed waves of consumption.
The other notable change going into 2014 was the reduction in the
importance of the ‘use of corporate assets’. Whereas this had previously
been seen as a signal of margin focus in the face of limited revenue
growth potential, the putative recovery has reduced its significance and
encouraged attention on, for example, recovery characteristics such as
described above.
© 2014 Reputation Dividend | 9
How Reputation Dividend Can Help
Our analytics are applied on two levels.
Level 1: Dedicated company reports
Analysis of your company’s reputation based on data and analysis from our
2014 study.
A report includes:
Your company’s Reputation Contribution – the value of your
company’s corporate reputation – and historical trend data.
Comparisons to defined competitors and peer group companies.
A breakdown of the sources of your company’s reputation value
and their individual contribution to market capitalization - your
company’s ‘Reputation Risk Profile’.
The incremental value potential of each reputational driver and
likely ROI – ‘what if’ analysis exploring different messaging
possibilities.
Pointers on reputational messaging priorities as they relate to
securing and growing shareholder value.
An individual company report includes a meeting to present the findings and
opportunity to discuss their implications.
Level 2: Ad-hoc research and consulting
For any company wishing to make a deeper dive investigation we offer a
second level of research and analysis. This provides a more comprehensive
and bespoke examination of the drivers of a company’s reputation and its
capacity to drive shareholder value.
This service is for organizations that wish to assess the impact of corporate
reputation in more detail and against company-specific reputational drivers or
against a particular timeframe (for example in the run up to financial results).
Level 2 reports take account of reputational and financial data from a mix of
your own internal and external sources. We can also undertake additional
custom research as required. We use our own research resources and can
complement these with any additional sources of your choice.
© 2014 Reputation Dividend | 10
These engagements often involve interviews with senior management,
investment and industry analysts and communications specialists to ensure
that existing strategies are factored into our analysis.
In addition to everything in a Level 1 report, a Level 2 report will provide:
The information necessary to inform executive management teams
how to allocate resources and budget more effectively.
A framework to align and adjust communications, messaging
channels and budgets.
Guidelines for revising the internal strategies to support the
reputation opportunities.
A basis to improve the coordination of communications and
operational strategies.
The insight and knowledge to better align corporate, internal and
customer brand management.
The basis of a fully integrated and on-going reputation value
management program.
Level 2 engagements include regular client liaison and findings review
throughout the process and culminate in a presentation to and discussion
with your senior leadership team.
For further information about the 2014 US study and how reputation
value analytics can help your company please contact either;
Simon Cole – Founding Partner Sandra Macleod – Director
© 2014 Reputation Dividend | 11
Valuing Corporate Reputation to
Secure and Build Shareholder Value
