The newly released 2017 Edelman Trust Barometer Special Report: Institutional Investors, a survey of global institutional investors’ views of public companies, highlights emerging risks and opportunities for companies to build and maintain trust with the financial community.
The inaugural report, whose respondents represent firms collectively managing over $1 trillion in assets, reveals that roughly half of institutional investors think that most companies do not acknowledge the risks to their business from the current political climate, reflecting broader concerns raised in the Trust Barometer Global Report 2017.
“For the first time, we can show that investors put trust at the front of the line when choosing stocks,” said Richard Edelman, CEO of Edelman, in a news release. “This new research shows that investors and the public alike are looking to business to fill the void left by the implosion of trust in government by taking a stand on the issues of our day.”
Companies expected to take a public stand on social issues
The survey found that 76 percent of investors believe that companies have an urgent obligation to take a public stand on one or more social issues to ensure the global business environment remains healthy and robust. Among the issues most frequently selected by investors were education reform/training, environmental issues, and free trade.
Investors care about how companies treat employees, customers
Eighty-seven percent of respondents say that customer service satisfaction affects trust, and one-third say that a poor relationship between a company’s leadership and employees hurts their trust in a company. Additionally, 69 percent say that prioritizing employee commitment builds trust in a company.
Investors view themselves as agents of change; companies unprepared
Nearly half of investors believe that their firm’s actions can play a meaningful role in influencing a company’s corporate governance. Additionally, 87 percent of institutional investors say that they would support a reputable activist investor if they believe change is necessary at a portfolio company. Eighty percent, meanwhile, agree that most companies are not prepared to handle shareholder activist campaigns.
Trust drives valuation and investment decisions
The Special Report reveals that trust drives the valuation of public companies. According to survey results, “Trust in the Company” is the top driver of investment decisions (82 percent), followed by ethical standards (76 percent), current valuation versus peers (75 percent), product R&D/Innovation (74 percent), and historical financial performance (70 percent). Additionally, 94 percent of respondents say that trustworthy companies deserve larger premiums than those considered untrustworthy.
Communicating to build trust
Effective communications are essential for building trust. 93 percent of investors say that keeping investors consistently well informed is necessary to earn their trust, and nearly all say that they trust companies that have a clear strategy more than those that do not.
In addition, how companies communicate their strategy matters. 79 percent of respondents would like to see more qualitative, forward looking disclosures when evaluating an investment, and 68 percent say that providing long-term guidance or financial performance helps build their trust in a company. 59 percent report that they trust a company that provides forward-looking guidance but misses occasionally more than they trust a company that provides no forward-looking information.
“This first-of-its-kind research offers new insights into how companies can prioritize certain actions and institute new behaviors to build trust with investors, thereby enhancing valuation,” said Lex Suvanto, global managing director of Edelman Financial Communications, in the release. “Companies must promote themselves inside-out to win trust while upgrading the fundamentals of their communications to the street. At the same time, investors view themselves as agents of change and will take action if companies fail to do so on their own.”
The report surveyed more than 100 investors in 14 countries, and is a supplement to the Edelman Trust Barometer launched annually in January at the World Economic Forum.