Back in the 70s, 80% of a company’s worth lied in the value of its tangible assets; that is, its factories, products, etc. whereas today, 80% of its intangible resources and assets represents the total value of that organization, among which the reputation, brand and social license can be mentioned. These are the main conclusions drawn by the Global Intangible Finance Tracker (GIFT) 2017, an annual report that shows how the value of intangible assets has evolved in stock markets around the globe.

The intangible economy came into the business world around ten years ago, as a result of the economic downturn started by 2008-2009, which triggered the collapse of large corporations and a climate of widespread distrust of companies and institutions, in general.

In this new economy, organizations were pushed into upgrading the market economy system and correcting its deficiencies and malpractices to step into a new economic model that, driven by business leaders, is capable of retrieving the once-lost trust and support from the global community.

However, the importance of reputation and the economy of intangible should be understood beyond a short-termed and immediate crisis context. The lessons learned from the most recent business scandals proves how relevant this new way of doing business is for the future and for the sustainability of corporations and institutions, in an effort not only to safeguard their value in the face of a reputational crisis but also to sustainably increase such value over time.

Everything seems to indicate that reputation and the relevance of intangibles have come to stay. A clear sign of it is how in recent years institutional investors, fund managers and credit entities have started to cast their eyes on the sustainability of the companies in which they invest. The concern for environmental, social and good governance criteria, also known as ESG, represents an increasing trend, as illustrated in the document “Approaching the future: informe de tendencias en gestión de intangibles” issued by the Corporate Excellence Center for Reputation Leadership and the IE Business School.

Different studies show that a comprehensive management, one that embraces responsible corporate governance to preserve their shareholders’ interests, demands accountability for their environmental and social impacts, in line with long-term value and risk management.

One example is the survey conducted by the MIT Sloan Management Review and The Boston Consulting where +3000 managers and investors from over 100 countries were polled. The research showed that 75% of the main investment entity leaders recognize that a company’s sustainability is a key factor to determine and investment decision.

Investor activism demanding firms for a more gravitational role in the resolution of social challenges (social security, health, education, safety, energy, environment, etc.), an example of which we find in The sense of purpose, a letter written by Blackrock CEO Larry Fink, the world's largest asset manager, stating that governments are no longer capable of solving these problems and it is the business sector that owns the resources and management tools to address such issues. BTG PACTUAL provides another example with their decision to launch the first ESG fund in Chile with the purpose of investing in socially responsible and environmentally sensitive companies, with robust corporate governance policies.

All the above leads us to conclude that our stakeholders (investors, employees and the society as a whole) raise their voices to press the need for a new way of doing business.

And this is no minor challenge: it calls for leadership, management and focus in, at least, three actions I consider of key importance for success:

First: Manage the commitment of our stakeholders. More than ever, today’s management should be an overarching practice within our organizations in order to secure commitment and engagement from our internal and external stakeholders. Such management should go hand-in-hand with professionals and leaders capable of reading the social context, actively listen their main needs and act accordingly.

Second: Generate non-financial indicators. Financial metrics have ruled the world economy in the past decades with short, medium and long-term and business related indicators. The new intangible economy must demonstrate it is capable of creating value in the long term with equally efficient indicators. Before making decisions and being certain of what variables to tap, reputation must be translated into value in order to constructively respond to the needs of our stakeholders and demonstrate the value of ESG assets to directors and investors.

Third: Communicate with transparency. Build consistent narratives on the basis of our identity, purpose, vision, culture and values as an institution. The more a company is organized, aligned and certain about its vision and values, the easier will be to communicate these concepts to its stakeholders, generating positive perceptions.

The pressure put by society on companies to make them assume more active roles in improving the market economy system by owning up to global issues, becomes an even more urgent imperative for new generations as this will be their starting point. Thus, strengthening reputation, intangibles and the ESG variables, eventually, will turn out to be even more decisive for new consumers where those firms unresponsive to society will be left out of the game.

Only those firms that properly manage their intangibles and reputation –that is, their actions are consistent with their words- and are capable of demonstrating, in the long-term, their ESG management value will be the best positioned with respect to other political and social actors to pursue success and drive the recovery of trust that will allow them to compete in global markets in perfect alignment with their employees, community, shareholders and value chain.

María Elena Sanz I.

Executive Vice President Sustainability & People Management, CAP Group