2017 Edelman Trust Barometer. Special Report: Institutional Investors New Challenges and Expectations for Public Companies

Transcription

1 2017 Edelman Trust Barometer Special Report: Institutional Investors New Challenges and Expectations for Public Companies

2 2017 Edelman Trust Barometer Special Report: Institutional Investors Age % Under 25 1 % % % % % % Job Titles % Portfolio managers 52 % Chief investment officers 24 % Financial analysts 13 % Directors of research 5 % Organization s Assets Under Management (USD) % Less than $500 million 38 % $500 million less than $1 billion 8 % $1 billion less than $10 billion 32 % $10 billion less than $50 billion 8 % $50 billion USD or more 13 % Methodology Online survey in 14 countries 101 respondents total Gender % Male 92 % Female 8 % Country Breakdown % United States 59 % Canada 12 % Primary Investment Style % Value 36 % GARP 23 % All fieldwork was conducted between June 20 th and July 18 th, 2017, in partnership with IPREO United Kingdom 7 % Other 22 % Growth 12 % Qualitative/Index 10 % Hedge 3 % All respondents invest in MSCI Global Index Industry-specific 3 % Activist 1% Other 11 % Prefer not to answer 2 % 14-country global data margin of error: Institutional Investors +/-9.75% (N=101) 2

3 Global Trust is in Decline

4 Global Trust is in Crisis Percent of the general population who trust the four institutions of government, business, media and NGOs, 2016 vs Trusted (60-100) Business is on the brink of distrust Neutral (50-59) Distrusted (1-49) NGOs Business Media Government Source: 2017 Edelman Trust Barometer Q Below is a list of institutions. For each one, please indicate how much you trust that institution to do what is right using a nine-point scale, where one means that you do not trust them at all and nine means that you trust them a great deal. (Top 4 Box, Trust) General Population, 28-country global total. 4

5 New Challenges for Public Companies Are You Prepared?

6 Institutional Investors Are Worried Negative Neutral Positive Looking back at the economic and political climate over the past 12 months, how would you describe the current investing environment? 54% Negative/Neutral Looking ahead at the next 12 months, what is your outlook on where the investing environment is heading, considering the economic and political climate? 72% Negative/Neutral Negative/Neutral outlook up 18 points Q1. Looking back at the economic and political climate over the past 12 months, how would you describe the current investing environment? (Top 2 Box) Q2. Looking ahead at the next 12 months, what is your outlook on where the investing environment is heading, considering the economic and political climate? (Top 2 Box) 6

7 Companies Seen as Unprepared for New Risks from Political Climate New Risks Nearly 1in2 investors agree that most companies do not fully acknowledge the new risks to their business from the current political climate Impact 79% of investors agree that a country s current political climate impacts in which companies my firm invests Q15: Below is a list of statements about the current political and business climate in which publicly traded companies operate. Please indicate the extent to which you agree or disagree with the following statements. (Top 2 box, Agree) 7

8 Low Trust in Watchdogs Only 28% of institutional investors trust government or media Percent of investors who see these people as credible sources of information about a company Rating agency representative 28 % Government official 19 % Financial/business journalist 17 % Q1a. Below is a list of institutions. For each one, please indicate how much you trust that institution to do what is right using a 9-point scale where 1 means that you do not trust them at all and 9 means that you trust them a great deal. (Top 4 Box, Trust) Q9: Below is a list of people. In general, when forming an opinion of a company, if you heard information about a company from each person, how credible would the information be--not credible at all, somewhat credible, very credible, or extremely credible? (Top 2 box, Credible 8

9 ESG Low in Importance, But One in Three More Attentive Investment Factor Voting Policy 28% agree ESG risk management is an important factor when considering a company to invest in or recommend doing so 35% agree my firm has changed its voting and/or engagement policy to be more attentive to ESG risks Q8: Please indicate the extent to which you disagree or agree with the following statements. (Top 2 box, Agree) 9

10 Investors View Themselves as Agents of Change Percent who agree with each statement 87% I will support a reputable activist investor if I believe change is necessary at a company I invest in or recommend doing so 80% most companies are not prepared to handle activists campaigns targeted at them 49% I believe my firm s actions can have a meaningful role in influencing a company s corporate governance Q8: Please indicate the extent to which you disagree or agree with the following statements. (Top 2 box, Agree) Q15: Below is a list of statements about the current political and business climate in which publicly traded companies operate. Please indicate the extent to which you agree or disagree with the following statements. (Top 2 box, Agree) 10

11 Upgrade Fundamentals Address New Considerations New Expectations for Building Trust with Institutional Investors

12 Companies Expected to Take a Public Stand on Social Issues Address New Considerations Issues 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 76% say you should address one or more of these issues Q14: The following is a list of societal issues that are currently the focus of concern and debate in many countries. These issues may cause the creation of new governmental rules, laws and policies that have implications for how businesses operate. Please select the issues you feel companies have an urgent obligation to take a public stand on to ensure the global business environment remains healthy and robust. Showing percent selected. 12

13 Board of Directors Reputation Matters Address New Considerations 66% must trust a company s Board of Directors before making or recommending an investment 65% agree an engaged and effective Board is important when considering a company to invest in 62% say frequent Board or management turnover impacts trust of a company Q4: Please indicate the extent to which you agree or disagree with the following statements. {Top 2 box, Agree) Q3: How important are each of the following when considering a company to invest in (or recommend doing so)? For each one, please indicate how important it is using a 9-point scale where 1 means not at all important and 9 means most important. (Top 4 box, Important) Q5. How much does each of the following impact your trust of a company that you are/may consider investing or recommending? For each one, please indicate the level of impact using a 9-point scale where 1 means no impact on trust and 9 means a great deal of impact on trust. (Top 4 box, Impacts) 13

14 Investors Care About How You Treat Employees Address New Considerations 69% say prioritizing employee commitment to the company impacts trust of a company 1out of 3 rank poor relationship with company employees as a negative impact on trust Q5: How much does each of the following impact your trust of a company that you are/may consider investing in or recommending? For each one, please indicate the level of impact using a 9-point scale where 1 means no impact on trust and 9 means a great deal of impact on trust. (Top 4 box, Impacts) Q6: Please rank the following in terms of what most impacts your trust of a company that you are/may consider investing in or recommending. Please rank the following with 1 being most impactful to 7 being least impactful. (Bottom 4, Ranking) 14

15 Customer Satisfaction Plays a Major Role Address New Considerations 87% say a company s customer service satisfaction impacts trust of a company Declining customer service and product quality have the biggest negative impact on trust What actions can a company s management team take to earn your trust? Focus on the customer retaining clients, gaining clients and delighting clients... - CIO, mutual fund, $500 million USD AUM Q5: How much does each of the following impact your trust of a company that you are/may consider investing in or recommending? For each one, please indicate the level of impact using a 9-point scale where 1 means no impact on trust and 9 means a great deal of impact on trust. (Top 4 box, Impacts) 15

16 Highlight Innovation To Show You Are Ahead of Disruption Address New Considerations 86% say the reputation of innovation impacts trust of a company 75% say product R&D and innovation are a driver of investing decisions What actions can a company s management team take to earn your trust? Be fearful of being disrupted and continuously seek ways to innovate... - CIO, mutual fund, $500 million USD AUM Q5: How much does each of the following impact your trust of a company that you are/may consider investing in or recommending? For each one, please indicate the level of impact using a 9-point scale where 1 means no impact on trust and 9 means a great deal of impact on trust. (Top 4 box, Impacts) Q3: How important are each of the following when considering a company to invest in (or recommend doing so)? For each one, please indicate how important it is using a 9-point scale where 1 means not at all important and 9 means most important. (Top 4, Importance) 16

17 Shareholders Demand Equal Say Address New Considerations 77% say providing equal voting rights to shareholders impacts trust of a company Q5: How much does each of the following impact your trust of a company that you are/may consider investing in or recommending? For each one, please indicate the level of impact using a 9-point scale where 1 means no impact on trust and 9 means a great deal of impact on trust. (Top 4 box, Impacts) 17

18 Keep Investors Consistently Well Informed Upgrade Fundamentals 93% say that keeping investors consistently well-informed impacts trust 58% agree that current disclosure requirements are not doing enough to maintain my 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 Q5: How much does each of the following impact your trust of a company that you are/may consider investing in or recommending? For each one, please indicate the level of impact using a 9-point scale where 1 means no impact on trust and 9 means a great deal of impact on trust. (Top 4 box, Impacts) Q4. Please indicate the extent to which you agree or disagree with the following statements. (Top 2 box, Disagree) Q7. What actions can a company s management team take to earn your trust? Please be as detailed and specific as possible. (Open end response) 18

19 Recognize There is No Trust Without a Clear Strategy Upgrade Fundamentals Clear Strategy Forward-Looking 99% agree I trust companies that have a clear strategy more than those that do not 79% say I would like to see more use of qualitative, forwardlooking disclosures when evaluating an investment What actions can a company s management team take to earn your trust? 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 Q4. Please indicate the extent to which you agree or disagree with the following statements. (Top 2 box, Agree) Q13: Please indicate to what extent you agree or disagree with the following statements. (Top 2 box, Agree) Q7. What actions can a company s management team take to earn your trust? Please be as detailed and specific as possible. (Open end response) 19

20 Focus on the Longer-Term Upgrade Fundamentals 86% 68% 59% agree I trust a company that provides forward-looking guidance but misses occasionally more than I trust a company that provides no forwardlooking information agree companies that focus on short-term results do not benefit my investment strategy say providing long-term guidance or financial performance impacts trust Q4. Please indicate the extent to which you agree or disagree with the following statements. (Top 2 box, Disagree) Q5: How much does each of the following impact your trust of a company that you are/may consider investing in or recommending? For each one, please indicate the level of impact using a 9-point scale where 1 means no impact on trust and 9 means a great deal of impact on trust. (Top 4 box, Impacts) Q4. Please indicate the extent to which you agree or disagree with the following statements. (Top 2 box, Agree) 20

21 Keep in Mind that Credibility is Not Exclusive to the C-Suite Percent who would find company information from each spokesperson credible Upgrade Fundamentals 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 Q9. Below is a list of people. In general, when forming an opinion of a company, if you heard information about a company from each person, how credible would the information be not credible at all, somewhat credible, very credible, or extremely credible? (Top 2 box, Credible) 21

22 Trust Drives Valuation

23 Trust Drives Valuation 82% say my trust in the company is important when considering a company to invest in 94% agree Trustworthy companies deserve a larger premium 76% say 87% agree that they must trust a company s management before making or recommending an investment Ethical standards are important when considering a company to invest in Q3. How important are each of the following when considering a company to invest in (or recommend doing so)? For each one, please indicate how important it is using a 9-point scale where 1 means not at all important and 9 means most important. (Top 4 box, Important) Q4. Please indicate the extent to which you agree or disagree with the following statements. (Top 2 box, Agree) 23

24 Trust in the Company Most Important Driver of Investment Decisions Percent who find each company attribute important when making investing decisions My trust in the company 82 Ethical standards Current valuation versus peer companies Product R&D/Innovation Historical financial performance Ability to meet financial guidance Only 34% Cite stock performance as an important consideration Q3. How important are each of the following when considering a company to invest in (or recommend doing so)? For each one, please indicate how important it is using a 9-point scale where 1 means not at all important and 9 means most important. (Top 4 box, Important) 24

25 Investors Take Action Based on Trust Percent who have taken each action in the last 12 months in relation to companies they distrusted and trusted Behaviors for Trusted Companies 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 Behaviors for Distrusted Companies Did not invest in stock Underweighted these companies stocks 41 Criticized them Persuaded others to sell their stock Voted against the Board of Directors 23 Supported an activist investor Q10: Thinking back over the past 12 months, have you taken or recommended taking any of the following actions in your job in relation to companies that you trust? Q11: Still thinking about the past 12 months, have you taken any of the following actions in your job in relation to companies that you do not trust? 25

26 Key Takeaways: New Challenges and Expectations in Building Trust with Institutional Investors

27 Key Takeaways Trust is a key factor in investment decisions The trust landscape is shifting, creating new challenges Companies must promote insideout to win trust Upgrading IR fundamentals can win trust Investors view themselves as agents of change when companies fail to act Source: 2017 Edelman Trust Barometer. Q732. What can businesses do that would cause the most damage to your trust in a better future? (Please select up to five.) General Population, 28-country global total, question asked of half the sample. 27

28 Expectations for Building Trust New Challenges New Risks from Political Climate Investors as Agents of Change Negative Outlook ESG Emerging Low Trust in Watchdogs New Considerations Take a Stand on Public Issues Board Reputation Matters Prioritize Your Employees Improve Customer Satisfaction Stay Ahead of Disruption Upgrade Fundamentals Ensure Clear Strategy Focus on the Longer-Term Keep Investors Well Informed Go Beyond Requirements Use a Broader Bench Trust Drives Valuation and Investment Decisions Provide Equal Say 28

29 Thank You

30 Appendix

31 2017 Edelman Trust Barometer Methodology Online Survey in 28 Countries General Online Population Informed Public Mass Population 17 years of data 33,000+ respondents total All fieldwork was conducted between October 13th and November 16th, years in 25+ markets Ages 18+ 1,150 respondents per country All slides show General Online Population unless otherwise noted 9 years in 20+ markets Represents 13% of total global population 500 respondents in U.S. and China; 200 in all other countries Must meet 4 criteria: Ages College educated In top 25% of household income per age group in each country All population not including Informed Public Represents 87% of total global population Report significant media consumption and engagement in business news 28-country global data margin of error: General Population +/-0.6% (N=32,200), Informed Public +/- 1.2% (N=6,200), Mass Population +/- 0.6% (26,000+). Countryspecific data margin of error: General Population +/- 2.9 ( N=1,150), Informed Public +/- 6.9% (N = min 200, varies by country), China and U.S. +/- 4.4% (N=500), Mass Population +/- 3.0 to 3.6 (N =min 740, varies by country), half sample Global General Online Population +/- 0.8 (N=16,100). 31

32 Why Edelman Studied Institutional Investor Trust Edelman has long studied trust trust in modern society, trust in the four institutions of business (economic well-being), government (national security and public policy), media (information and knowledge) and NGOs (social causes and issues). Earlier in 2017, Edelman Trust Barometer showed that trust is in crisis around the world, with the general population s trust in all four key institutions declining broadly. This trust crisis demands a new operating model for organizations by which they listen to all stakeholders. Key takeaways included serious implications for business to do more to earn and maintain trust, including listening to customers, treating employees well and offering high quality products and services. In a time when the stakes for business are ever-higher, by expanding our research of Trust to include an institutional investors view of public companies, Edelman is seeking to offer insights into how companies can prioritize certain actions and institute behaviors that build rather than destroy trust, thereby ultimately creating value for the organization and its stakeholders. The Trust-Building Attributes Each year, we ask respondents to rate the importance of a series of attributes in building trust in a company, and how well companies are performing against them. These can be grouped into five clusters: Integrity, Engagement, Products, Purpose and Operations. These original 16 trust-building attributes are shown on the next slide. In 2017, we explored additional dimensions to building trust in a company. These new dimensions fall into five areas, shown on the following slide: Employee Engagement, Diversity, Citizenship, Leadership and Relationship-Building. 32

33 Drivers of Trust Percent who find each company attribute important when making investing decisions My trust in the company 82 % Ethical standards 76 % Current valuation versus peer companies 75 % Product R&D/Innovation 74 % Ability to meet financial guidance 70 % Historical financial per 70 % An engaged and effective Board of Directors 65 % Industry reputation 56 % Access to management 50 % Appropriate executive compensation 46 % Providing forward-looking financial guidance 45 % Board of Directors composition 37 % Stock performance 34 % ESG (environmental, social, governance) risk management 28 % CSB (corporate social responsibility) initiatives 19 % Access to the Board of Directors 18 % Anti-takeover provisions 14 % Q3. How important are each of the following when considering a company to invest in (or recommend doing so)? For each one, please indicate how important it is using a 9-point scale where 1 means not at all important and 9 means most important. Showing top 4 box 33

34 Trust in Public Companies is Easily Lost Percent who ranked each statement in the top 3 of impacting trust Declining product quality and customer service 85 Poor shareholder communications and disclosures 63 Mishandling company crises Poor corporate governance Poor relationship with company employees 32 Weak corporate sustainability practices Poor environmental stewardship 9 11 Q6: Please rank the following in terms of what most impacts your trust of a company that you are/may consider investing in or recommending. Please rank the following with 1 being most impactful to 7 being least impactful. Showing percentage who ranked each statement first, second, or third. 34

35 Sources of Information Percent who agree with each statement 50% 65% 49% 29% the way most companies share information for IR purposes is outdated I would like to see more visual ways of sharing information I regularly read information published on a company s digital and social media channels, website, and/or corporate blogs I regularly consult a company s social media Q13: Please indicate to what extent you agree or disagree with the following statements. (Top 2; Agreement) 35

36 Contact Us Lex Suvanto Global Managing Director, Financial Communications & Capital Markets Deb Wasser, IRC Executive Vice President, US Practice Lead, Investor Relations, Financial Communications & Capital Markets Julia Sahin Account Supervisor, Financial Communications & Capital Markets To learn more about us, visit: 36