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2017 Edelman
Trust Barometer
Special Report:
Institutional Investors
Executive Summary |
2
Methodology
Edelman 2017 Trust Barometer Special Report:
Institutional Investors captures insights from
a powerful group of global institutional investors.
This research was completed in partnership with Ipreo, a
leading global provider of financial services technology,
data and analytics. Edelman surveyed chief investment
officers, portfolio managers and buy-side analysts across
14 countries whose firms collectively manage more than $1
trillion in assets using various investment styles.
The research supplemented Edelman’s respected
Trust Barometer launched annually in January at the World
Economic Forum. Now in its 17th year, the Trust
Barometer measures global trust in four main institutions:
business, government, media, and NGOs.
Edelman’s Institutional Investor research is based on an
online survey of 101 institutional investors. Respondent
breakdown was as follows, and represented firms that
manage assets ranging from less than $500 million to more
than $50 billion USD:
Portfolio managers 52%
Chief investment officers 24%
Financial analysts 24%
Directors of research 5%
Data fieldwork was conducted by Edelman Intelligence
between June 20 and July 18, 2017.
View the findings report here:
https://www.edelman.com/trust2017/institutional-investors/
1
3
Contents
03 Building Investors’ Trust
Enhances Corporate Valuation
05 Politically Charged Environment
Creating New Concerns
06 Investors View Themselves
as Agents of Change
07 Investor Trust Goes Beyond
the Financials
11 Operationalizing the Findings:
Rethink and Retool Your Practices
to Accommodate New Realities
09 A Forward-Looking Narrative
is Essential for Building Trust
22017 | Edelman Trust Barometer | Institutional Investors
13 New Challenges and
Expectations for Building Trust
with Institutional Investors
4
Make no mistake: Trust matters
to institutional investors. To them,
trust in a company is a critical variable
underpinning their investment decisions.
Consider these significant findings:
if institutional investors trust a company,
77% invested or increased their
position, 60% praised it to a peer,
53% persuaded others to invest and 50%
voted in favor of the Board, in the last 12
months.
Investors are just as action-oriented for
companies they distrust: 73% did not invest in
the stock, 71% underweighted these
companies’ stocks, 41% criticized the
company to others and 37% voted against its
board.
Building Investors’ Trust Enhances
Corporate Valuation
Investors Take Action Based on Trust
Behaviors for Trusted Companies
77
60
53
50
39
32
Invested in stocks or increased my position
Praised them to a peer
Persuaded others to invest
Voted in favor of the Board of Directors
Voted in favor of management
Supported a merger
73
71
41
37
37
23
Behaviors for Distrusted Companies
Did not invest in stock
Underweighted these companies’ stocks
Criticized them
Persuaded others to sell their stock
Voted against the Board of Directors
Supported an activist investor
Percent who have taken each action in the last 12 months
in relation to companies they distrusted and trusted
3
5
More than 80% of institutional investors agree
that trust in a company is important when
considering an investment, 87% indicate that
trust in management is a prerequisite to
making or recommending an investment and
94% agree that trustworthy companies
deserve a larger premium.
Trust proves so important that eight in
ten respondents identify it as the most
important attribute when making investment
decisions – ranking ahead of valuation
versus peer companies (75%), historical
performance and ability to meet financial
guidance (both at 70%).
agree that they must trust a company’s
management before making or
recommending an investment
87%
say “my trust in the company”
is important when considering
a company to invest in
82%
94% agree
trustworthy companies
deserve a larger premium
76% say
ethical standards are
important when
considering a company
to invest in
42017 | Edelman Trust Barometer | Institutional Investors
62017 | Edelman Trust Barometer | Institutional Investors
Institutional investors
state that a more politically
charged environment is
creating new issues for
companies and they cite
low trust in traditional
watchdogs.
Investors echo broader
concerns raised in the
2017 Edelman Trust
Barometer, which showed
trust in all four institutions
(NGOs, business, media
and government) in
decline.
When asked to look back
on the economic and
political environment over
the last 12 months, 54%
of investors said they were
negative or neutral about
the current investing
climate. When asked to
look 12 months ahead,
these investors were
meaningfully more
pessimistic, with nearly
three-fourths (72%)
describing themselves
as having a negative or
neutral outlook. Not
surprisingly, 79% of
investors agree that
a country’s political climate
impacts the companies
in which their firms invest.
Importantly, nearly half of
investors agree that most
companies do not fully
acknowledge the new risks
to their business from the
current political climate.
Investors’ apprehension
is compounded by low
confidence in regulators,
government and media
– institutions that
traditionally played
important watchdog roles.
Only 28% of investors
have trust in these
institutions, with faith
in rating agency
representatives,
government officials
and business/financial
journalists at only 28%,
19% and 17%, respectively.
Politically Charged Environment
Creating New Concerns
Nearly 1i n 2
investors agree that
most companies do
not fully acknowledge
the new risks to their
business from the
current political climate
5
7
Investors View Themselves
as Agents of Change
76% say
you should address one
or more of these issues
Institutional investors say
they take an active stance
with respect to the companies
in which they invest. Investors
surveyed view themselves
as agents of change, with
nearly half (49%) believing
their firm’s actions can
play a meaningful role in
influencing a company’s
corporate governance.
Further, institutional investors
overwhelmingly admit their
willingness to support activist
investors. Seven in eight say
they will support a reputable
activist investor if they believe
change is necessary at a
company in which they invest.
Additionally, 80% say that
most companies are not
prepared to handle activists’
campaigns targeted at them,
a response that should
concern management
teams and boards.
While environmental, social
and governance (ESG) risks
ranked low as factors driving
investment decisions, one in
three investors say they are
becoming more attentive to
ESG and have changed their
voting and/or engagement
policies regarding these
issues. Companies must
be prepared for ESG to draw
increasing focus among
investors over time.
Taking a Public Stand
on Social Issues
In what Edelman believes
is one of the survey’s most
compelling findings, 76% of
investors expect companies
to take a public stand on
societal issues to ensure the
global business environment
remains healthy and robust.
This new research shows
that investors and the public
alike are looking to business
to take a stand on the issues
of the day and fill the void
left by the implosion of trust
in government.
Issues on which companies have an urgent obligation
to take a public stand on to ensure the global business
environment remains healthy and robust
Most selected
Least selected
Education reform/training
Environmental issues
Free trade
Automation of workforce
Income inequality
Gender issues
Workplace diversity
Immigration
Globalization
Outsourcing
62017 | Edelman Trust Barometer | Institutional Investors
8
02
Investor Trust Goes Beyond
the Financials
Building trust is essential
for winning support from
investors, and therefore is
a critical factor in influencing
financial valuation. However,
trust can be built with
investors through a variety
of non-financial actions.
Our research revealed that
investors are closely watching
how a company conducts its
business to determine trust.
Investors consider how
companies treat employees
and customers when
making investment
decisions. 87% of institutional
investors say that customer
service satisfaction impacts
their trust and therefore
investment decisions. They
also agree that declining
customer satisfaction and
product quality have the
greatest negative impact
among a range of potential
adverse factors. Given how
widely available customer
satisfaction information
is today – including industry
ratings, customer reviews,
proprietary channel checks,
investigatory websites,
regulatory actions – scrutiny
of how companies treat
customers is more intense
than ever before.
Investors similarly
recognize the positive
impact of an engaged
employee workforce on
corporate performance.
69% of investors agree
that prioritizing a company’s
employee commitment has a
clear and constructive impact
on trust. Conversely, one in
three agree that a poor
relationship with employees
detracts from trust. Employee
sentiment is, of course, highly
visible on Glassdoor and
social media, and companies
should understand that
it increasingly factors into
investors’ assessments.
87% say
a company’s customer
service satisfaction
impacts trust of a company
7
9
In addition, investor trust is
influenced by a company’s
reputation and track record
of innovation, which
reflects the company’s
commitment to staying
ahead of disruption.
86% of investors say a
company’s reputation for
innovation impacts their
trust and 75% say R&D
and innovation are a driver
of investment decisions.
Unsurprisingly, trust
in a company’s Board of
Directors is fundamental
to driving company trust,
posing interesting
questions about the
reputation of the Board
within the financial
community.
Two in three investors
say they must trust a Board
of Directors before making
or recommending an
investment.
Nearly as many assert that
an engaged and effective
Board is important when
considering a company
in which to invest. Investors
also view Board and
managerial stability as
critical: 62% say frequent
board or management
turnover damages trust
in a company.
And investors want to be
treated equitably, with 77%
saying that providing equal
voting rights to all share-
holders impacts their trust
in a company.
Edelman’s research shines
a spotlight on how company
Boards are viewed externally
and should compel
companies to consider
which strategies would be
appropriate to strengthen
their reputation and what the
role of the Board should be in
that process.
66% must trust
a company’s Board of
Directors before making or
recommending an investment
82017 | Edelman Trust Barometer | Institutional Investors
10
Our study also revealed
essential learnings for
how companies should
communicate with investors.
A clear and well-communicated
corporate strategy is mandatory:
virtually all respondents (99%)
say that they trust companies
that have a well-defined strategy
more than those that do no.
Nearly four in five (79%) favor
companies using more forward-
looking disclosures. And 58%
said that current disclosure
requirements are not doing
enough to maintain their trust,
implying that companies
should go beyond what
is statutorily required.
agree that current disclosure
requirements are not doing
enough to maintain my trust
58%
agree I trust a company that
provides forward-looking
guidance but misses
occasionally more than I trust
a company that provides no
forward-looking information
A Forward Looking Narrative
is Essential for Building Trust
99% agree
I trust companies that have
a clear strategy more than
those that do not
59%
9
11
Finally, reflecting their long-term
orientation, 86% of investors assert
that companies that focus on short-
term results do not benefit their
investment strategy. And two in three
investors (68%) say that providing
long-term guidance on financial
performance positively impacts trust.
What actions can a company’s management team take to earn your trust?
“Clear and frequent communication
on strategy, targets to meet and how
they will and how they have delivered
on the stated goals.”
- Portfolio manager,
mutual fund, $50
billion USD AUM
agree companies that focus
on short-term results do not
benefit my investment strategy
86%
“Clarity in strategy and purpose,
adopting a true long-term
perspective that is articulated to
all stakeholder[s]…”
- CIO, institutional asset
manager, between $10
and $50 billion USD AUM
102017 | Edelman Trust Barometer | Institutional Investors
12
Operationalizing the Findings:
Rethink and Retool Your Practices
to Accommodate New Realities
To succeed in this challenging environment,
companies must recognize investors’
heightened expectations and build new
communications and engagement
behaviors into their corporate governance,
investor relations and financial
communications strategies.
Consider the following actions for
companies seeking to increase institutional
investor trust:
1. Articulate long-term business strategy
clearly and feature in all communications,
including quarterly earnings, digital assets,
broker conferences and one-on-one and
group meetings.
2. Explain how corporate strategy supports
the investment thesis, describe how capital
allocation policies support that strategy,
and use the 10-K, proxy statement and
other communications to explain the
financial and nonfinancial key performance
indicators that demonstrate that the
strategy is on track.
3. Communicate additional factors critical
to achieving success. Given that half of
investors surveyed agree that most
companies employ outdated ways to
share information for investor relations
purposes, the status quo is insufficient.
4. Identify, explain and take a public stand
on issues important to the business
model - including, for example, continued
access to human capital from abroad,
free trade, sustainable agriculture or
training and education.
5. Financial communications should include
information such as customer service
metrics, context on supplier relationships,
and channel partners. Effective trust
builders will also share with investors their
measures of employee engagement, which
many companies produce, and show how
quantitative measures of human capital
– such as longevity, turnover rates and net
promoter scores – position their company
for success in the competition for talent.
“Trust in the Company”
Most Important Driver
of Investment Decisions
Percent who find each company attribute
important when making investing decisions
70
70
74
75
76
82
Ability to meet financial guidance
Historical financial performance
Product R&D/Innovation
Current valuation versus peer companies
Ethical standards
My trust in the company
11
13
6. Recognizing the emerging importance
of how a board is viewed externally and
especially by the financial community,
public companies need to take steps
to increase the Board’s reputation.
Mechanisms for doing this include both
effective proxy communications and an
active program of investor engagement
to build understanding of Board priorities
and alignment with investors. Determining
how and when Board members should
participate in investor engagement is
of paramount importance. More specifically,
addressing perceived inequities, such as
dual classes of shares, and communicating
about factors underlying corporate
performance, will further position
a company for success.
7. Communicate from the inside out. In
today’s distrusted environment, companies
will be well-served by employing a broader
bench to communicate information to
investors. The C-Suite, trusted by 70%
of investors, is a given, but investors highly
regard information from company technical
experts, such as engineers and scientists,
trusted by 74% of respondents, and the
company’s Lead Independent Director,
trusted by 69% of investors. Consider also
how to share the voice of your regular
employees in investor communications, as
they are trusted by 59% of investors; and
outside academics or experts with relevant
expertise, viewed as credible by 57% of
investors.
57
59
6970
74
Keep in Mind that Credibility is Not Exclusive to the C-Suite
Percent who would find company information from each spokesperson credible
A technical
expert within
the company
(e.g. engineer,
scientist)
C-Suite Independent
Lead Director
of a company
A regular
employee of the
company (within
compliance
regulations)
A business/
financial
academic or
expert on that
company’s
industry issues
122017 | Edelman Trust Barometer | Institutional Investors
14
Edelman’s research describes a world in
which trust is declining globally and investors
are willing to act as “agents of change” to
ensure a company is delivering on its
commitments and potential. For public
companies and their Boards, the silver lining
is that investors overwhelmingly want a robust
dialogue that is long-term in its orientation,
based on a sound understanding of the
company’s strategy and the factors that
enable it. By communicating from the inside
out, taking steps to be visible on public issues
that impact its business, being attentive to
perceptions of its Board and management,
and building new fundamentals into their
corporate governance, investor relations and
financial communications practices, forward-
thinking companies will be well-placed to build
trust and meet the challenges of today’s
demanding environment.
New Challenges and Expectations for
Building Trust with Institutional Investors
Take a Stand
on Public Issues
Board Reputation
Matters
Prioritize Your
Employees
Improve Customer
Satisfaction
Stay Ahead of
Disruption
Provide Equal Say
Ensure Clear Strategy
Focus on the
Longer-Term
Keep Investors
Well-Informed
Go Beyond
Requirements
Use a Broader Bench
New Considerations Upgrade Fundamentals Trust
Drives
Valuation
and
Investment
Decisions
New Risks from
Political Climate
Investors as
Agents of Change
Negative Outlook
ESG Emerging
Low Trust in
Watchdogs
New Challenges
13
15
Edelman Financial Communications &
Capital Markets is a boutique strategic
consultancy with the reach and resources
of a leading global communications
marketing firm. We advise public and
private companies on strategic and
capital markets communications to help
effectively position them with the financial
community during transformative events
as well as during the normal course of
business. Clients choose to work with
us because of our specialized and
experienced financial communications
team, our ability to provide the full range
of Edelman’s services (such as digital and
social media, public affairs and employee
engagement) as well as our ability to
access Edelman’s global network with
more than 65 offices around the world.
About Edelman’s Financial
Communications Practice
For additional information please contact:
Ted McHugh, Senior Vice President
212-819-4875 or Ted.McHugh@edelman.com
Julia Sahin, Senior Account Supervisor,
212-738-6131 or Julia.Sahin@edelman.com
2017 | Edelman Trust Barometer | Institutional Investors 142017 | Edelman Trust Barometer | Institutional Investors
Back Cover
© 2017 Edelman, Inc. All rights reserved.

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2017 Edelman Trust Barometer Special Report: Investor Trust Executive Summary

  • 1. 2017 Edelman Trust Barometer Special Report: Institutional Investors Executive Summary |
  • 2. 2 Methodology Edelman 2017 Trust Barometer Special Report: Institutional Investors captures insights from a powerful group of global institutional investors. This research was completed in partnership with Ipreo, a leading global provider of financial services technology, data and analytics. Edelman surveyed chief investment officers, portfolio managers and buy-side analysts across 14 countries whose firms collectively manage more than $1 trillion in assets using various investment styles. The research supplemented Edelman’s respected Trust Barometer launched annually in January at the World Economic Forum. Now in its 17th year, the Trust Barometer measures global trust in four main institutions: business, government, media, and NGOs. Edelman’s Institutional Investor research is based on an online survey of 101 institutional investors. Respondent breakdown was as follows, and represented firms that manage assets ranging from less than $500 million to more than $50 billion USD: Portfolio managers 52% Chief investment officers 24% Financial analysts 24% Directors of research 5% Data fieldwork was conducted by Edelman Intelligence between June 20 and July 18, 2017. View the findings report here: https://www.edelman.com/trust2017/institutional-investors/ 1
  • 3. 3 Contents 03 Building Investors’ Trust Enhances Corporate Valuation 05 Politically Charged Environment Creating New Concerns 06 Investors View Themselves as Agents of Change 07 Investor Trust Goes Beyond the Financials 11 Operationalizing the Findings: Rethink and Retool Your Practices to Accommodate New Realities 09 A Forward-Looking Narrative is Essential for Building Trust 22017 | Edelman Trust Barometer | Institutional Investors 13 New Challenges and Expectations for Building Trust with Institutional Investors
  • 4. 4 Make no mistake: Trust matters to institutional investors. To them, trust in a company is a critical variable underpinning their investment decisions. Consider these significant findings: if institutional investors trust a company, 77% invested or increased their position, 60% praised it to a peer, 53% persuaded others to invest and 50% voted in favor of the Board, in the last 12 months. Investors are just as action-oriented for companies they distrust: 73% did not invest in the stock, 71% underweighted these companies’ stocks, 41% criticized the company to others and 37% voted against its board. Building Investors’ Trust Enhances Corporate Valuation Investors Take Action Based on Trust Behaviors for Trusted Companies 77 60 53 50 39 32 Invested in stocks or increased my position Praised them to a peer Persuaded others to invest Voted in favor of the Board of Directors Voted in favor of management Supported a merger 73 71 41 37 37 23 Behaviors for Distrusted Companies Did not invest in stock Underweighted these companies’ stocks Criticized them Persuaded others to sell their stock Voted against the Board of Directors Supported an activist investor Percent who have taken each action in the last 12 months in relation to companies they distrusted and trusted 3
  • 5. 5 More than 80% of institutional investors agree that trust in a company is important when considering an investment, 87% indicate that trust in management is a prerequisite to making or recommending an investment and 94% agree that trustworthy companies deserve a larger premium. Trust proves so important that eight in ten respondents identify it as the most important attribute when making investment decisions – ranking ahead of valuation versus peer companies (75%), historical performance and ability to meet financial guidance (both at 70%). agree that they must trust a company’s management before making or recommending an investment 87% say “my trust in the company” is important when considering a company to invest in 82% 94% agree trustworthy companies deserve a larger premium 76% say ethical standards are important when considering a company to invest in 42017 | Edelman Trust Barometer | Institutional Investors
  • 6. 62017 | Edelman Trust Barometer | Institutional Investors Institutional investors state that a more politically charged environment is creating new issues for companies and they cite low trust in traditional watchdogs. Investors echo broader concerns raised in the 2017 Edelman Trust Barometer, which showed trust in all four institutions (NGOs, business, media and government) in decline. When asked to look back on the economic and political environment over the last 12 months, 54% of investors said they were negative or neutral about the current investing climate. When asked to look 12 months ahead, these investors were meaningfully more pessimistic, with nearly three-fourths (72%) describing themselves as having a negative or neutral outlook. Not surprisingly, 79% of investors agree that a country’s political climate impacts the companies in which their firms invest. Importantly, nearly half of investors agree that most companies do not fully acknowledge the new risks to their business from the current political climate. Investors’ apprehension is compounded by low confidence in regulators, government and media – institutions that traditionally played important watchdog roles. Only 28% of investors have trust in these institutions, with faith in rating agency representatives, government officials and business/financial journalists at only 28%, 19% and 17%, respectively. Politically Charged Environment Creating New Concerns Nearly 1i n 2 investors agree that most companies do not fully acknowledge the new risks to their business from the current political climate 5
  • 7. 7 Investors View Themselves as Agents of Change 76% say you should address one or more of these issues Institutional investors say they take an active stance with respect to the companies in which they invest. Investors surveyed view themselves as agents of change, with nearly half (49%) believing their firm’s actions can play a meaningful role in influencing a company’s corporate governance. Further, institutional investors overwhelmingly admit their willingness to support activist investors. Seven in eight say they will support a reputable activist investor if they believe change is necessary at a company in which they invest. Additionally, 80% say that most companies are not prepared to handle activists’ campaigns targeted at them, a response that should concern management teams and boards. While environmental, social and governance (ESG) risks ranked low as factors driving investment decisions, one in three investors say they are becoming more attentive to ESG and have changed their voting and/or engagement policies regarding these issues. Companies must be prepared for ESG to draw increasing focus among investors over time. Taking a Public Stand on Social Issues In what Edelman believes is one of the survey’s most compelling findings, 76% of investors expect companies to take a public stand on societal issues to ensure the global business environment remains healthy and robust. This new research shows that investors and the public alike are looking to business to take a stand on the issues of the day and fill the void left by the implosion of trust in government. Issues on which companies have an urgent obligation to take a public stand on to ensure the global business environment remains healthy and robust Most selected Least selected Education reform/training Environmental issues Free trade Automation of workforce Income inequality Gender issues Workplace diversity Immigration Globalization Outsourcing 62017 | Edelman Trust Barometer | Institutional Investors
  • 8. 8 02 Investor Trust Goes Beyond the Financials Building trust is essential for winning support from investors, and therefore is a critical factor in influencing financial valuation. However, trust can be built with investors through a variety of non-financial actions. Our research revealed that investors are closely watching how a company conducts its business to determine trust. Investors consider how companies treat employees and customers when making investment decisions. 87% of institutional investors say that customer service satisfaction impacts their trust and therefore investment decisions. They also agree that declining customer satisfaction and product quality have the greatest negative impact among a range of potential adverse factors. Given how widely available customer satisfaction information is today – including industry ratings, customer reviews, proprietary channel checks, investigatory websites, regulatory actions – scrutiny of how companies treat customers is more intense than ever before. Investors similarly recognize the positive impact of an engaged employee workforce on corporate performance. 69% of investors agree that prioritizing a company’s employee commitment has a clear and constructive impact on trust. Conversely, one in three agree that a poor relationship with employees detracts from trust. Employee sentiment is, of course, highly visible on Glassdoor and social media, and companies should understand that it increasingly factors into investors’ assessments. 87% say a company’s customer service satisfaction impacts trust of a company 7
  • 9. 9 In addition, investor trust is influenced by a company’s reputation and track record of innovation, which reflects the company’s commitment to staying ahead of disruption. 86% of investors say a company’s reputation for innovation impacts their trust and 75% say R&D and innovation are a driver of investment decisions. Unsurprisingly, trust in a company’s Board of Directors is fundamental to driving company trust, posing interesting questions about the reputation of the Board within the financial community. Two in three investors say they must trust a Board of Directors before making or recommending an investment. Nearly as many assert that an engaged and effective Board is important when considering a company in which to invest. Investors also view Board and managerial stability as critical: 62% say frequent board or management turnover damages trust in a company. And investors want to be treated equitably, with 77% saying that providing equal voting rights to all share- holders impacts their trust in a company. Edelman’s research shines a spotlight on how company Boards are viewed externally and should compel companies to consider which strategies would be appropriate to strengthen their reputation and what the role of the Board should be in that process. 66% must trust a company’s Board of Directors before making or recommending an investment 82017 | Edelman Trust Barometer | Institutional Investors
  • 10. 10 Our study also revealed essential learnings for how companies should communicate with investors. A clear and well-communicated corporate strategy is mandatory: virtually all respondents (99%) say that they trust companies that have a well-defined strategy more than those that do no. Nearly four in five (79%) favor companies using more forward- looking disclosures. And 58% said that current disclosure requirements are not doing enough to maintain their trust, implying that companies should go beyond what is statutorily required. agree that current disclosure requirements are not doing enough to maintain my trust 58% agree I trust a company that provides forward-looking guidance but misses occasionally more than I trust a company that provides no forward-looking information A Forward Looking Narrative is Essential for Building Trust 99% agree I trust companies that have a clear strategy more than those that do not 59% 9
  • 11. 11 Finally, reflecting their long-term orientation, 86% of investors assert that companies that focus on short- term results do not benefit their investment strategy. And two in three investors (68%) say that providing long-term guidance on financial performance positively impacts trust. What actions can a company’s management team take to earn your trust? “Clear and frequent communication on strategy, targets to meet and how they will and how they have delivered on the stated goals.” - Portfolio manager, mutual fund, $50 billion USD AUM agree companies that focus on short-term results do not benefit my investment strategy 86% “Clarity in strategy and purpose, adopting a true long-term perspective that is articulated to all stakeholder[s]…” - CIO, institutional asset manager, between $10 and $50 billion USD AUM 102017 | Edelman Trust Barometer | Institutional Investors
  • 12. 12 Operationalizing the Findings: Rethink and Retool Your Practices to Accommodate New Realities To succeed in this challenging environment, companies must recognize investors’ heightened expectations and build new communications and engagement behaviors into their corporate governance, investor relations and financial communications strategies. Consider the following actions for companies seeking to increase institutional investor trust: 1. Articulate long-term business strategy clearly and feature in all communications, including quarterly earnings, digital assets, broker conferences and one-on-one and group meetings. 2. Explain how corporate strategy supports the investment thesis, describe how capital allocation policies support that strategy, and use the 10-K, proxy statement and other communications to explain the financial and nonfinancial key performance indicators that demonstrate that the strategy is on track. 3. Communicate additional factors critical to achieving success. Given that half of investors surveyed agree that most companies employ outdated ways to share information for investor relations purposes, the status quo is insufficient. 4. Identify, explain and take a public stand on issues important to the business model - including, for example, continued access to human capital from abroad, free trade, sustainable agriculture or training and education. 5. Financial communications should include information such as customer service metrics, context on supplier relationships, and channel partners. Effective trust builders will also share with investors their measures of employee engagement, which many companies produce, and show how quantitative measures of human capital – such as longevity, turnover rates and net promoter scores – position their company for success in the competition for talent. “Trust in the Company” Most Important Driver of Investment Decisions Percent who find each company attribute important when making investing decisions 70 70 74 75 76 82 Ability to meet financial guidance Historical financial performance Product R&D/Innovation Current valuation versus peer companies Ethical standards My trust in the company 11
  • 13. 13 6. Recognizing the emerging importance of how a board is viewed externally and especially by the financial community, public companies need to take steps to increase the Board’s reputation. Mechanisms for doing this include both effective proxy communications and an active program of investor engagement to build understanding of Board priorities and alignment with investors. Determining how and when Board members should participate in investor engagement is of paramount importance. More specifically, addressing perceived inequities, such as dual classes of shares, and communicating about factors underlying corporate performance, will further position a company for success. 7. Communicate from the inside out. In today’s distrusted environment, companies will be well-served by employing a broader bench to communicate information to investors. The C-Suite, trusted by 70% of investors, is a given, but investors highly regard information from company technical experts, such as engineers and scientists, trusted by 74% of respondents, and the company’s Lead Independent Director, trusted by 69% of investors. Consider also how to share the voice of your regular employees in investor communications, as they are trusted by 59% of investors; and outside academics or experts with relevant expertise, viewed as credible by 57% of investors. 57 59 6970 74 Keep in Mind that Credibility is Not Exclusive to the C-Suite Percent who would find company information from each spokesperson credible A technical expert within the company (e.g. engineer, scientist) C-Suite Independent Lead Director of a company A regular employee of the company (within compliance regulations) A business/ financial academic or expert on that company’s industry issues 122017 | Edelman Trust Barometer | Institutional Investors
  • 14. 14 Edelman’s research describes a world in which trust is declining globally and investors are willing to act as “agents of change” to ensure a company is delivering on its commitments and potential. For public companies and their Boards, the silver lining is that investors overwhelmingly want a robust dialogue that is long-term in its orientation, based on a sound understanding of the company’s strategy and the factors that enable it. By communicating from the inside out, taking steps to be visible on public issues that impact its business, being attentive to perceptions of its Board and management, and building new fundamentals into their corporate governance, investor relations and financial communications practices, forward- thinking companies will be well-placed to build trust and meet the challenges of today’s demanding environment. New Challenges and Expectations for Building Trust with Institutional Investors Take a Stand on Public Issues Board Reputation Matters Prioritize Your Employees Improve Customer Satisfaction Stay Ahead of Disruption Provide Equal Say Ensure Clear Strategy Focus on the Longer-Term Keep Investors Well-Informed Go Beyond Requirements Use a Broader Bench New Considerations Upgrade Fundamentals Trust Drives Valuation and Investment Decisions New Risks from Political Climate Investors as Agents of Change Negative Outlook ESG Emerging Low Trust in Watchdogs New Challenges 13
  • 15. 15 Edelman Financial Communications & Capital Markets is a boutique strategic consultancy with the reach and resources of a leading global communications marketing firm. We advise public and private companies on strategic and capital markets communications to help effectively position them with the financial community during transformative events as well as during the normal course of business. Clients choose to work with us because of our specialized and experienced financial communications team, our ability to provide the full range of Edelman’s services (such as digital and social media, public affairs and employee engagement) as well as our ability to access Edelman’s global network with more than 65 offices around the world. About Edelman’s Financial Communications Practice For additional information please contact: Ted McHugh, Senior Vice President 212-819-4875 or Ted.McHugh@edelman.com Julia Sahin, Senior Account Supervisor, 212-738-6131 or Julia.Sahin@edelman.com 2017 | Edelman Trust Barometer | Institutional Investors 142017 | Edelman Trust Barometer | Institutional Investors
  • 16. Back Cover © 2017 Edelman, Inc. All rights reserved.