‘Trust in the Company’ Is Top Driver of Investment Decisions: Edelman

Most investors consider companies unprepared to handle shareholder activism

The overwhelming majority of institutional investors cite "trust in the company" as the biggest driver of investment decisions, according to a global report released this week by Edelman, a public relations agency.

And in a political environment that poses business risks, according to many of those investors, building trust often means taking a political stand.

In a statement, Edelman said the new findings reflected broader concerns raised in its Trust Barometer Global Report 2017, published in January.

“For the first time, we can show that investors put trust at the front of the line when choosing stocks,” the firm’s chief executive, Richard Edelman, said in the statement.

“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.”

The report was based on an online quantitative survey conducted in June and July of 101 institutional investors in 14 countries that collectively manage more than $1 trillion in assets. Fifty-two percent of participants were portfolio managers, 24% chief investment officers, 13% financial analysts and 5% directors of research. Ipreo provided investor data.

The survey found that 76% of investors believed that companies have a pressing obligation to take a public stand on one or more social issues to ensure the global business environment remains healthy and robust.

Respondents most frequently pointed to education reform/training, environmental issues and free trade.

Eighty-seven percent of poll participants said customer service satisfaction affected trust, and one-third said a poor relationship between a company’s leadership and employees hurt their trust in a company.

In addition, 69% said prioritizing employee commitment was a way for a company to build trust.

Recent research on customers’ opinions about major U.S. bank brands found Wells Fargo the least-trusted bank following its fake-account opening scandal.

About half of institutional investors in the Edelman report believed that their company’s actions could meaningfully influence a company’s corporate governance.

Moreover, 87% of respondents said they would support a reputed activist investor if they considered change at a portfolio company necessary.

At the same time, 80% agreed that most companies were not prepared to handle shareholder activist campaigns.

Winning Trust

According to the new report, trust drives the valuation of public companies. Survey results showed that “trust in the company” was the top driver of investment decisions, selected by 82% of respondents.

Seventy-six percent chose ethical standards, 75% current valuation versus peers, 74% product R&D/innovation and 70% historical financial performance.

In addition, 94% of respondents said trustworthy companies deserved larger premiums than those considered untrustworthy.

Nine in 10 poll respondents said keeping investors consistently well informed was essential to earn their trust. Nearly all said they trusted companies that have a clear strategy more than those that do not.

How companies communicate their strategy matters, according to the findings. Seventy-nine percent of respondents said they would like to see more qualitative, forward-looking disclosures when evaluating an investment, and 68% said receiving long-term guidance or financial performance helped build their trust in a company.

Investors do not demand perfection, however. Fifty-nine percent said they trusted a company that provided forward-looking guidance but missed occasionally more than they trusted one that provided no forward-looking information.

“Companies must promote themselves inside-out to win trust while upgrading the fundamentals of their communications to the street,” Lex Suvanto, global managing director of Edelman Financial Communications, said in the statement.

“At the same time, investors view themselves as agents of change and will take action if companies fail to do so on their own.”

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