Reputation has always mattered -- just check the stock price of Netflix after its recent stumbles or BP shares after the oil spill in the Gulf -- but it's always been an intangible thing that could be hard for companies to manage or investors to get their arms around.
That's about to change.
A new index based on an algorithm that was developed by a Pittsburgh company to track reputation value for public companies is set to be added today to those calculated by Dow Jones Indexes.
The idea is to give investors another tool to identify potential investments and to help companies learn to better manage their reputations, according to Nir Kossovsky, chief executive of Steel City Re. The reputation metrics and quantitative reputation management firm tries to track a company's reputation vs. its stock performance as well as identify those with strong reputations that may be under the radar.
The new index, to be called RepuStars Variety Corporate Reputation Index and calculated by Dow Jones Indexes, is based on the same formula that Steel City Re supplied weekly for several years to a blog by the Intangible Asset Finance Society.
Two versions will be calculated: a price index under the ticker REPUVAR and a total returns index under the ticker REPUVART, according to an announcement from Steel City Re.
Mr. Kossovsky said the price index has outperformed the Standard & Poor's 500 by an average of 9.5 percent annually for the past 10 years and the total returns index has averaged 11 percent higher.
Among the factors that enter into a company's reputation include hiring practices, ethical behavior, innovation in product development and sustainability. The explosion of social media venues has made it easier for consumers and media to comment on a company's decisions and for incidents to gain widespread attention that can impact a company's reputation.
Reputation indexes could take awhile to get investors' attention, but Mr. Kossovsky noted that, by 2010, one-third of S&P 500 companies had started disclosing that reputation risk can have a material impact on their value. "There's a whole new focus on this thing," he said.
First Published: November 1, 2011, 4:00 a.m.