MISSION INTANGIBLE

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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Reputational Benefits of the London Stock Exchange

C. HUYGENS - Monday, January 27, 2014
Reputation was the major source of enterprise value growth for listed companies on the London Stock Exchange according to a public relations trade magazine, the Holmes Report. Notwithstanding the blather about reputation contributing to market cap, which is all true, the article unfortunately concludes with a hearty "atta-boy" for the communications industry, to wit, "Communications leaders should take a lot of credit for building the value of the assets in their charge. The growing professionalism of the function and its impact on corporate decision-making paid dividends."

Points for linking reputation to value; demerits for focusing on market cap and communications.

Jonathan Salem Baskin applauds the metrics, but cautions that a diversity of financial metrics are better for gauging reputational value; i.e., pricing power, labor costs, credits costs, etc. where the impact of every stakeholder can be seen. Stock price is a less useful measure because it is closely linked to the expectations of one particular group of stakeholders: investors. And in down markets, a reputation may be very strong but spending power very weak - it is then that reputation as a relative source of value becomes most apparent. Ultimately, notes Baskin, reputation is "an expression of relative worth between companies, within sectors, and across markets." Read more.

As for the value of public relations, communications are clearly part of the equation, but they are the tail, not the dog. Reputation, whose value rests on the degree to which key business processes meet or exceed stakeholder expectations, realizes its value when stakeholder are able to appreciate transparently the benefits of the business processes. These processes generally fall into the six categories of ethics, innovation, quality, safety, sustainability and security. Communications can only communicate that which the business achieves, or reasonably aspires to achieve . If communications are ahead of business realities, then communications becomes a source of reputation risk.

It turns out, though, that there is something rather special about the London Stock Exchange and perhaps communications. Not noted in the Holmes Report is that the risk of an adverse event that triggers a material loss of reputational value is about 35% lower for companies listed on the London Stock Exchange when compared to the average listed company. Other quantitative measures courtesy of Steel City Re, the reputational value insurer, is that Xetra-listed, NASDAQ-listed, and NYSE-listed companies are at about par, companies on the peripheral eastern and western European markets are about 40% higher, and companies listed on the southern European markets are 200% (Athens) and 400% (Cyprus) higher, respectively. 

These data suggest that communications and operations are most closely in-sync with respect to operational excellence for companies on the LSE. Points to all for setting and meeting stakeholder expectations.

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