Posts Tagged ‘Reputation’

Investor relations for the USA?

August 8, 2011

The President has pulled into the lead, ahead of a three-way tie among the Treasury secretary, “Other” (write-ins Ben BernankePaul Volcker, Bill Clinton and “Someone who’s fluent in Chinese“) and “Oh, never mind!” What do you think?

Not a political comment … just a little comic relief amid wild days in the markets.

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Good news for BP shareholders?

June 1, 2010

Let’s not take this to extremes, but a recent study offers the counter-intuitive notion that companies with great reputations don’t generally provide great returns for investors – and a decline in corporate reputation can presage better returns.

In the Spring 2010 issue of the Journal of Portfolio Management, economist Deniz Anginer and finance prof Meir Statman look at Fortune magazine’s “Most Admired Companies” rankings from the start of that survey in 1983 up through 2007.

The annual “Most Admired” survey reflects opinions of executives, directors and analysts on companies in their own industries.  You might expect the stocks of firms with the best reputations to perform best in the market, but it just isn’t so.

The authors compare portfolios of higher-reputation companies vs. lower-rated firms, looking at 12-month returns following publication of the “admired” ratings:

We find that stocks of spurned companies, or those with relatively low Fortune ratings, beat the stocks of admired companies, or those with relatively high ratings.

… we also find that stocks of companies that moved up the reputation scale lagged stocks of companies that moved down the scale.

This study looks at a relatively short-term trade, a 12-month adjustment after a reputational change takes hold. It doesn’t consider multi-year differences in returns or valuation between respected and disrespected firms.

The authors also don’t explore causes of their counter-intuitive finding. But I believe a key factor is that reputation surveys are lagging indicators:

  • A company is recognized for rising reputation after peers in its industry see it deliver strong results, an increasing stock price, high-profile successes. And then? Well, high-flying companies and stocks tend to revert to the mean.
  • When bad things happen to a company, peers and analysts are quick to cast blame – the stock drops, company reputation sags. And then recovery begins.

The JPM article confirms what many value investors practice: Out-of-favor stocks may yield more opportunities than “admired” companies riding the wave, for the simple reason that less-popular companies are cheaper than glamour issues. And at least some of the high-multiple stocks are going to hit bumps in the road.

Of course, it isn’t much of an investor relations story to say “Our reputation is in the tank, so things can’t help but get better.” And IR people, as champions of our companies’ reputations, all want rising earnings, strategic accomplishments, recognition in places like Fortune … the good news that creates solid reputations.

But when times are tough, we may find some comfort in the reversion to the mean.

© 2010 Johnson Strategic Communications Inc.

Psychoanalyzing Goldman Sachs

November 10, 2009

If Goldman Sachs is a star in your investment universe, or even a remote planet you aspire to add to your universe, you ought to read the fascinating company profile (“I’m doing ‘God’s work’. Meet Goldman Sachs”) in The Sunday Times of Nov. 8.

The newspaper’s piece is heavy on pop psychology and a bit overawed by Goldman (in the mode of “Gee, these guys really have a lot of money and aren’t they smart!”). It delves into the bailout controversy and those evil bonuses. But it’s also full of anecdotes and insights into how Goldman works – and gets ahead. A few tidbits:

There’s no name plate on the building, no sign on the front desk and the armed policeman stationed outside isn’t saying who works there. There’s a good reason for the secrecy. Number 85 Broad Street, New York, NY 10004, is where the money is. All of it.

… “I know I could slit my wrists and people would cheer,” [Chairman and CEO Lloyd Blankfein] says. But then, he slowly begins to argue the case for modern banking. “We’re very important,” he says, abandoning self-flagellation. “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.” To drive home his point, he makes a remarkably bold claim. “We have a social purpose.”

… the bosses work hard to foster a “we’re in this together”, family-style approach. Others say it feels more like a cult, but they mean it as a compliment.

… Goldman staffers are also trained to “brain pick” contacts and clients harder than the other guy. “You ask what’s their best trade. How do they see the market,” says one. “You offer something in return, but you always come back with something. Then you feed it to colleagues …”

… with Lehman Brothers and Bear Stearns off the street, Merrill Lynch a crippled shadow of its former self, and neither Citigroup nor UBS the forces of old, Goldman has a bigger slice of a growing pie. “We didn’t f*** up like the other guys. We’ve still got a balance sheet. So, now we’ve got a bigger and richer pot to piss in,” is how one Goldman banker puts it. Small wonder the bank is on course to set aside over $20 billion for salaries and bonuses.

Even the firm’s IRO comes into the story, commenting on the sublimation of individual egos to the corporate ethos:

Dane Holmes, 39, Goldman’s head of investor relations, is a 6ft 8in tall, 260lb former college basketball player. He looks like he could run straight through opponents — hell, through brick walls! — if he wanted to. But, he says: “That’s not the way Goldman works. You can have a great career in banking as an individual, but it won’t be here. The system weeds out those who can’t play nicely with others.”

Don’t be ACORNed

September 28, 2009

Regardless of your politics, it’s clear that what happened to the activist group ACORN this month is an extraordinary case study in Web 2.0 and the rapid loss of reputation. It’s a new media nightmare.

Before answering “What’s this got to do with IR?” here’s a recap of the action:

acornACORN is the Association of Community Organizations for Reform Now. An advocate for the poor, labor and liberal causes, ACORN organizes voter registration drives, demonstrations and efforts to influence government or pressure businesses. While controversial and oft-accused of improprieties, ACORN has won victories against big companies and been an ally of some top Democratic leaders.

Along came two politically motivated social media types, James O’Keefe and Hannah Giles. Like other 20-somethings, O’Keefe has been producing videos for the Web – in his case, needling liberals. Giles, a 20-year-old college sophomore, got in touch with O’Keefe with an idea to go after ACORN with a made-up event.

The two concocted a scenario to test the community organizers’ integrity. O’Keefe would play the role of a pimp and Giles a prostitute. The pair gathered a few props, went on the road with a hidden camera, and set out to entrap ACORN.

Visiting ACORN offices in DC, New York, Baltimore, San Diego and San Bernadino, O’Keefe and Giles told ACORN counselors they needed advice on getting a house for the prostitution biz, hiding income from the IRS, avoiding police detection, and smuggling underage girls into the country to use as prostitutes.

The poseurs got their shocker. Some of the ACORN officials went along, seemingly ignoring the illegality and morally outrageous nature of acts they were discussing. The videos show ACORN people casually giving advice for how best to carry out and conceal the purported illegal enterprise. “Pimp” and “prostitute” seemed to be treated like any other client.

BigGovernment.com, a new conservative website, linked up with O’Keefe and Giles and used their sensationalized attack videos to create momentum for its September launch on the Internet. It’s been a success: The ACORN videos went viral, with links from a host of blogs and tweets; they were huge on YouTube; the slam on ACORN struck a chord with conservative talk hosts; and the controversy crossed over into mainstream media. Within days, Congress members were denouncing ACORN and voting to defund it. Everyone’s investigating.

ACORN has been tripping over itself with denials and counter-attacks. It denounced “indefensible” actions of its people and fired some. Accused the video makers of distortions and filed a lawsuit. Invoked the respected names of its silk-stocking Advisory Council. Posted its own video. Launched an “investigation” of itself. ACORN has tried all the usual reputation-defense tactics. But the damage is done.

This isn’t a small-time hit. BigGovernment is the brainchild of Andrew Breitbart, a conservative Internet entrepreneur who has worked with Drudge Report, a top right-leaning site, and a similar aggregator, Breitbart.com. The sophisticated distribution and marketing of the “news” is worthy of film propagandist Michael Moore or liberal political activists MoveOn.org. These people play hardball.

Well, enough politics. What does the ACORN story have to do with corporations and IR? Investor relations professionals need to envision, for a moment, the potential for a new media nightmare for their corporate reputations.

Build your own scenario. Imagine a couple of 20-somethings bent on doing damage to your company, products or industry. You can’t predict what store, office or plant they may visit. Starting with sophisticated new media skills, they add well-funded distribution – and show no civility or restraint in their attack.

Will the “gotcha” go viral? How much will it damage the company’s reputation?

The anti-business analogy to ACORN’s current organizational torment argues powerfully that companies need to prepare for potential crises created through interactive media channels. Skirmishes already have taken place – but may intensify.

Companies ought to minimize risk by being sure our people are all trained in ethical conduct. If we consistently do what’s right, it’s much less embarrassing. Culture can prevent problems – or not.

IR and other functions must develop robust social media skills, so we’re prepared before a crisis strikes. And we should invest in early warning systems – assuring timely internal communication, as well as monitoring the social and regular Web.

Our crisis communication plans – including IR components – must be up to the challenges of the 21st Century.

Don’t be ACORNed.

© Copyright 2009 Johnson Strategic Communications Inc.

Quote, unquote – Reputation

September 25, 2009

Suffering the slings and arrows of public distrust for the pharmaceutical industry, Merck & Co. is becoming more accessible to various stakeholders – and changing its business model based on what it hears – CEO Dick Clark says in the Q3 2009 issue of NYSE Magazine. Clark says restoring trust is about doing and saying:

At the end of the day, reputation is grounded in actions, accompanied by candid, timely and transparent communication.

Sounds like a motto for the practice of investor relations.

Social media, reputation & IR

August 17, 2009

There’s a gap in many corporations – and among investor relations people – between recognizing the growing influence of social media (on one hand) and hesitating (on the other) to engage proactively to support company reputations.

In a guest post today on the “Full Disclosure” Big Fat Finance blog, Sharon Allen, Chairman of Deloitte LLP, talks about the firm’s recent “Ethics & Workplace” survey of 500 executives and 2,000 employees. Bosses and workers take different tacks:

  • Although 60% of executives believe companies have a right to know what employees are saying about themselves and their employers, the majority of workers say posts on networking sites are none of management’s business.
  • While most employees recognize that online posts affect their companies’ reputations, a third say they don’t consider bosses or customers’ possible reactions before posting on social networking platforms. 41% of employees say they wouldn’t change their online behavior “even if there were a clear corporate policy about social networking use.”
  • In any case, only 17% of the companies “have programs in place to monitor and mitigate the possible reputational risks related to social network use.”

Allen comments:

As we’ve seen all too often recently, offensive Internet postings and viral videos can race across networks at the speed of light. Left in their wake are damaged brands and shattered reputations …

Establishing policies — or assuring that existing core policies extend to include employee behavior on social networking sites — is crucial to helping everyone understand what constitutes acceptable behavior, especially when our survey results indicate that so few companies have addressed the issue.

Because of the reputational risks, boards of directors should be addressing social media, the Deloitte exec suggests. She says companies should establish policies on use of social networking – and integrate new media into their cultures.

Allen doesn’t address potential risks in investor relations – such as employees leaking financial information on Facebook or tweeting about business trends (whether optimistically or negatively) on Twitter. These risks are good reason for IROs to help management incorporate social media into disclosure policies, implement monitoring of chatter, and develop a strategy for active engagement to support corporate reputation, in addition to individual brand marketing online.

Reputation ‘now more than ever’

June 24, 2009

The financial and economic crisis has seriously eroded the trust people feel for business generally and specific corporations – and companies need a concerted, sophisticated effort to repair the damage – three McKinsey & Co. consultants write in “Rebuilding Corporate Reputations” in the firm’s June 2009 newsletter.

Today is an especially tough environment for corporate reputations, the consultants say. The onslaught of online participatory media, scrutiny from nongovernmental organizations, and waning trust for advertising make it harder to be believed. And all this comes at the same time that policy makers are eager to make an example of corporate executives and impose new laws and regulations on their industries.

Old-line PR tactics will no longer work in this environment, the authors say:

Now more than ever, it will be action—not spin—that builds strong reputations. Organizations need to enhance their listening skills so that they are sufficiently aware of emerging issues; to reinvigorate their understanding of, and relationships with, critical stakeholders; and to go beyond traditional PR by activating a network of supporters who can influence key constituencies.

A company fighting for its reputation must marshal a coordinated cross-functional response including investor relations, communications, marketing, legal and regulatory, and corporate social responsibility, the consultants write (OK, OK, they mention IR last). And reputation management must begin at the top:

… it’s the CEO who must lead a company’s overall reputation strategy, ideally with the support of a board committee focused on it. This may seem like a lot of firepower, but in today’s climate, with reputational issues threatening both shareholders and a company’s ability to achieve broader goals, that degree of high-level attention and integration is essential.

Investor relations professionals should be big-picture people, and the intersection of reputation, industry standing in the public policy arena and shareholder value is ample reason for IR to join in the effort to understand and build reputations.

Madoff – “no reputation risk”?

February 12, 2009

madoffsBernie Madoff has pretty much replaced Paris Hilton and Britney Spears as a source of celebrity scandal news. Amid the pervasive chatter, an ironic anecdote comes out today in a Yahoo! TechTicker interview with James Altucher, managing partner of Formula Capital.

Altucher describes making a pitch in 2005 to try to get Madoff and his son Mark to put money into Altucher’s fund of hedge funds:

I went through the whole pitch, my returns were great, they were very excited. But, they said, James we love you, but we cannot invest in your fund of hedge funds. And I said, Why not? They said, Bernie and Mark both said … Here at Madoff Securities reputation is the most important thing. And to have that money go out there, and you’re sending that money out there, we have no idea about the hedge funds you’re in. We cannot take any reputation risk. There is no Wall Street headline risk here. Reputation is the most important thing.

Well, there’s reputation risk – and then there’s reputation risk. Most people would never flirt with the dishonesty Madoff embraced, much less tempt fate by making pious comments about reputation. But sometimes the biggest liars start believing their own tales.

Update your website

February 2, 2009

Getting caught with stale information on your website is an embarrassing – and usually preventable – moment. Investor relations can lead the way in protecting the company reputation by keeping that website up to date – or ensuring that someone is tasked with monitoring the corporate site.

The latest slap at a company website comes from Thomas Brown, a hedge fund guy writing on the BankStocks.com blog. Brown has been on the warpath against Bank of America and its CEO, and he takes another slap today in a post called “Ken Lewis’s Web Bio: Update Urgently Needed.” 

The B of A executive bio Brown cites gives Lewis implied credit for big increases in revenue, profit, assets and shareholder value …

During his tenure, Bank of America has improved customer satisfaction significantly across every major line of business; annual revenue has increased from $33 billion to $66 billion; annual profit has increased from $7.5 billion to $15 billion; assets have increased from $642 billion to $1.7 trillion; market capitalization has grown from $74 billion to $183 billion; and total annual shareholder returns (including stock price growth plus dividends) have averaged 13.3%, doubling peers, the KBW Banks Index, the S&P 500 and the Dow Jones Industrial Average over the same period.

… except that it doesn’t cite a time period for those stellar results.

Anyone who hasn’t been lost at sea knows that shareholder value in the banking biz – and for B of A – hasn’t been growing of late.

Brown refutes the rosy results point by point. That $138 billion market cap for BAC? It’s dropped to $38 billion, says Brown (closer to $30 billion after today). And the 13.3% annual total shareholder return? Brown calculates average total return as negative 18% per year during Lewis’s tenure as CEO.

I’m not into kicking a bank when it’s down, or siding with the hedgies. Generally, blending financial metrics into corporate descriptive material seems like a good idea – perspective and all that. But letting it go stale? Let’s just say it gives ammunition to the critics.

Best practice would assign responsibility for monitoring web content to someone who’s part of the company’s messaging process, whether it’s a person in IR, corporate communications or an outside firm. (The task should not go to a tech person or web designer, whose skills are not in financial communication.) 

This has to be an ongoing maintenance commitment. And you must decide a comfort level for how often to check and update the site: quarterly would make sense, at least, maybe monthly or a continual loop process.

Most admired: What do investors esteem?

September 11, 2008

I’ve always been skeptical of “most admired companies” articles – popularity contests whose outcomes may depend on who is ranking the companies and on what basis, as well as which firms or industries have had a recent run on Wall Street. Give me fundamentals over popularity. But the cover story in Barron’s this week, “The Market’s Finest,” offers a couple of useful insights for investor relations people. Barron’s polled 70 portfolio managers in U.S. buy side firms, a fair sample of our institutional audience.

It’s all well and good that Johnson & Johnson scored No. 1 in the rankings, followed by Procter & Gamble, Toyota Motor, Berkshire Hathaway and Apple in the top five. (The survey covered the world’s 100 largest companies – so most of us never had a chance and shouldn’t feel regret. See the article for the full list of 100.)

Of more interest to me are the “most important factors” that money managers say shape their views. In order of importance:

… Strong management

… Sound business strategy

… Ethical business practices

… Competitive edge

… Product innovation

Well, maybe the latest quarterly earnings enter the picture somehow. But the enduring influences are quality and integrity of management, along with business strategy and two of its main levers: competitive advantage and product innovation.

And Barron’s observes:

As in years past, this year’s ranking illustrates the fact that corporate respect must be earned over a span of decades. While scandals or corporate-governance abuses quickly can empty a company’s reservoir of goodwill with investors and others, highly respected companies tend to retain their strong marks even during lulls in stock performance or profitability.

Surely these managerial and strategic characteristics should rank near the top among messages that IR professionals focus on disclosing, explaining and (should we say it?) “selling” to the market.