The reputations of corporations and their leadership rank high in importance among financial analysts who rate companies and issue opinions, according to a global survey—Return on Reputation— the latest in the Hill & Knowlton series of Corporate Reputation Watch studies. The survey was conducted with public opinion research firm MORI, which surveyed financial analysts in North America, Europe and Asia on reputation and its impact on their opinions and ratings of companies.
When asked importance of specific tangible and intangible factors in making recommendations to invest in a company, “financial performance” (87 percent rated it as extremely or very important), “quality of the leadership team” (86 percent) and “making good on promises” (85 percent) were virtually tied as the top criteria.
But analysts also place so much importance on reputation matters that a huge majority (88 percent of North America, 91 percent of Continental Europe, 93 percent of U.K. and 94 percent of Asia Pacific) agree that a company that fails to look after its reputation will ultimately suffer financially.
“According to H&K’s study, analysts around the world are united in agreement that reputation has a direct correlation to a return on shareholder value,” said Judi Frost Mackey, senior vice president and director of the H&K U.S. corporate and financial practice. “Publicly traded companies and even private companies should take note that attention to reputation factors matter now more than ever.”
The study found that the reputation of C-suite executives—consisting of the CEO, CFO and COO—was more important in influencing analysts (96 percent, 95 percent and 90 percent respectively rating them as fairly, very or extremely important) than the reputation of business unit leaders (81 percent), the company chairman (76 percent) or the independent board of directors (68 percent).
“The CEO continues to be the most important carrier of the reputation flag, but his or her team has gained ground, especially those who focus on company operations,” says Mackey. “Furthermore, execution and communications are key to building a strong reputation, with nearly 100 percent of the respondents saying that execution of a company strategy contributes to a company’s value, while poor execution and communications have played a role in negative ratings.”
The Return on Reputation study found that transparent disclosure as well as clear and consistent communication with key stakeholders were widely influential non-financial elements affecting analysts’ assessments, with 93 percent agreeing that each of these factors contributed to their assessment of a company’s value. Both ranked high (88 percent and 79 percent respectively) in causing respondents to give a company a negative rating when done poorly.
A “clear path or strategy” (87 percent extremely or very important) and “achieving the milestones against that strategy” (86 percent extremely or very important) were rated as the most important items to communicate to the investment community.
Nearly half (46 percent) of analysts surveyed said that a CEO should be allowed less than a year of consecutive bad quarters before they should be replaced. In addition, good or poor management by former executives may leave a lasting effect on analysts’ impressions – nearly half (48 percent) said that past management still affects their opinions for up to two years into the new leadership’s tenure.
Most analysts feel that the companies they watch are good providers of information, although the quality of communication varies by region: 76 percent regard companies in North America as good information providers, compared with 65 percent for companies in Europe, but there are much reduced levels of happiness with those from Asia (21 percent) and Latin America (10 percent).
A similar picture emerges when it comes to the provision of information about business strategy. Overall, 84 percent believe they get what they need, with figures for North America, U.K. and continental Europe of 88 percent, 88 percent and 85 percent respectively. For Asia Pacific the figure is a lower 71 percent.
Generally analysts believe that the corporate leadership in companies based in their region lives up to their promises, with 71 percent being the average score. However, for Asia Pacific analysts and those who follow the technology sector, the figures stand at 62 percent and 63 percent respectively.
The failure to provide appropriate information will lead to negative ratings with 90 percent saying that it is fairly likely/very likely/or certain to downgrade companies for such failure.
Analysts are most interesting in hearing about the company’s strategic direction, progress against milestones or success against strategy, and changes in the senior executive team, followed by changes in company structure, new product or service developments, plans for mitigating risk and customer satisfaction data.
One to one meetings, quarterly earnings conference calls, company presentations and annual reports are the top four most important methods of communication. As far as the media are concerned, the FT, Bloomberg and The Wall Street Journal top the list of analyst sources. When it comes to looking for reliable sources of information about a company, the company website, customer research and employees are the top three.
Blogging has yet to have any real impact on the analyst community, with only 17 percent seeing this medium as fairly important or above compared to 71 percent for articles in the business media and 85 percent for the company website.