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Governance and social responsibility don’t deliver value

— 1 minute read

New research has found that governance and social responsibility do not play an important role in delivering value for companies.

Rather, corporate reputations may just be the key ingredient in saving companies from stock market shockwaves, according to the research from AMO. 

AMO, a strategic advisory network, has unveiled that the individual components of corporate reputation creates the most value for the world’s leading companies. 

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The most important factors driving reputation contribution to global stock prices were investors’ perceptions of long-term investment value, quality of management, financial soundness and ability to manage people. 

According to the research, factors like governance or social responsibility do not appear to play an important role in delivering value. 

Factors most likely to boost value were things like global competitiveness, in which a 5 per cent increase in positive investor perceptions would deliver an estimated 82-basis-point rise in market cap, and long-term investment value, which delivers an estimated 76-basis-point rise. 

The research found that, globally, 35.3 per cent of overall market capitalisation was attributable to corporate reputations, representing $16.77 trillion of shareholder value. 

It found that 79 per cent of companies saw their stock values shored up by corporate reputations that accounted for $17.2 trillion of market capitalisation. 

At the other end of the scale were 21 per cent of companies which saw their market cap reduced by a total of $436 billion due to the impact of negative reputations. 

New economy sectors like technology, telecom and healthcare displayed the greatest value, with tech companies enjoying a reputation premium of over 43 per cent over the value implied by financial metrics. 

The industries where reputations did not see a strong boost to capitalisations were utilities, industrials and oil and gas. 

Co-chairman of AMO Angus Maitland said investors were increasingly sensitive to the strength of a company’s reputation, and this report showed how valuable that was. 

“When times get tough, it will be the companies with stronger, more balanced corporate reputations that will ride the ensuing storm more effectively, protect value and come out on top. Understanding the triggers that will protect and enhance the value of their company’s reputation is crucial to managers of any listed company,” said Mr Maitland.

The Australian partner for the research, Financial & Corporate Relations managing director Anthony Tregoning, said that until this research, it had been hard to measure the value of reputations in any meaningful way. 

“AMO’s report shows that 35.3 per cent of the overall market capitalisation of over 1,000 of the world’s largest companies is attributable to corporate reputations,” he said. 

Australian companies particularly could achieve disproportionate impact by changing perceptions in just a small number of reputational drivers, said Mr Tregoning. 

“Australian companies can achieve disproportionate impact by changing perceptions in just a small number of reputation drivers, obtaining higher returns on their investment in communication. 

“Organisations in the spotlight of high-profile events – such as financial services and healthcare companies – can benefit from an external sounding board to ensure that they receive impartial feedback.”

 

Governance and social responsibility don’t deliver value
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Eliot Hastie

Eliot Hastie

Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms. 

Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.

Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).

You can email him on: [email protected]

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