Corporate reputation is certainly an area that is hard to quantify, even though there's no denying its impact on an organisation's performance. As the number of potential reputational risks increase, the importance of developing and maintaining an organisation's standing has become more central to its performance.
A recent study has attempted to explain how reputation contributes to an organisation's overall financial performance. The eighth annual Reputational Dividend study has looked at UK- and US-listed companies to understand how much of their market valuation is attributable to their perception management efforts.
Unsurprisingly, top of the list of American companies is Apple – with an estimate that 49.5 per cent of its market valuation stems from the confidence investors have in its reputation.
Across the top 10 US-listed companies by reputation, an average of 45 per cent of their market share stems from their good name.
In the UK, the results were similar, with the top-ranked company, Unilever, seeing its reputation account for an estimated 49.7 per cent of its market value. Other high-ranking companies included GlaxoSmithKline (fourth), Shell (eighth) and HSBC (ninth).
While these highlight how valuable a strong corporate reputation is, there were other cases where a poor reputation was destroying organisational value. In the US results, roughly 10 per cent of companies experienced a decline in market value because of a negative reputation.
Many of the companies in both markets also saw the contribution reputation made to their overall market value decrease since the year before. Reputation Dividend Director Sandra Macleod suggested this was "a surprising trend given growing boardroom attention to trust and transparency".
As companies continue to adjust to a market where their value is determined by their reputational risk management efforts, the link between market performance and reputation is only set to grow.