The news that companies and institutional investors will meet in London this spring to discuss ways of measuring reputational capital suggests that the business world is now close to commissioning some serious work on this topic.
Demand for reliable measures of the value of intangible assets such as company reputation is growing fast. In the UK, it is being driven in part by the company law review.
This review, which has just published its final consultation document, proposes that companies produce a mandatory operating and financial review each year ‘to account for and demonstrate stewardship of a wide range of relationships and resources’.
It is hard to see how a company can do this without measuring intangible factors, which, as the review points out, are ‘of vital significance to the success of modern business, but often do not register effectively, or at all, in traditional financial accounts’.
It has to be recognised that intangible assets, by their very nature, are difficult to measure. Developing reliable measures of reputational capital is not going to be easy – but it is not going to be impossible either. A few companies have already developed fairly sophisticated measures, and most companies routinely collect relevant data, such as staff turnover rates, absenteeism levels and employee satisfaction surveys, for other management purposes.
All parties will benefit from an ability to measure reputational capital. It will help companies, insurers and investors to assess risk. The longer that companies continue operating without generally agreed ways of measuring the benefits improved social and environmental performance can deliver, the longer they will be open to charges from sceptics that their activities in these areas have no value. But non-governmental organizations will benefit too. Reliable measures will help them to put pressure on some companies to behave in a more socially responsible manner.