Reputation: A Matter of Buy, Sell, or Hold?
Some might attract global profile, others might be noticed by many fewer, but there are a significant number of examples each year when we observe a clear link between corporate reputation and stock market valuation. Almost all of these are where a company has not delivered in a manner that has been expected by its customers, suppliers, staff, or to society more generally. The transgressor’s reputation has taken a hit and so has its share price. The impact is often immediate and can be challenging to overcome.
But MSLGROUP’s research shows that for most people, how a company is doing financially is not something that concerns them when it comes to their own views of a company’s reputation. A company is either doing well (and can therefore be expected to deliver on a series of reputational positives), or it is not. Most people do not read the financial pages of the newspapers. For them, the only time that business results appear to enter the public consciousness is when a company’s performance has been so spectacularly bad or when the CEO is seen to have been so inappropriately remunerated that it is front page rather than business page news.
This research has also determined that although a public perception of ‘good management’ (whatever that actually means) can support a positive reputation, actually making money is something that might raise questions. For a pharmaceutical company, for example, the research shows a negative relationship between profit and reputation – a small, but important indicator that post the financial crisis, business as a whole has yet to clearly set out an accepted argument for profit and corporate financial success. So if the general public does not really care how a business is doing financially, should the financial markets really care how the business is doing reputationally?
The answer would appear to be an obvious yes. But in reality how many companies are actually demonstrating the link between reputation and performance in a way that is built into analyst models and investor decision making? In our experience, there are not many who are (for example Allianz, American Express, Philips) but when a company does take the time to provide a detailed insight into this dimension it appears such an obvious thing to do.
We have seen through this research that Net Promoter Score has a very strong correlation with core reputation. There are many examples where it has been demonstrated that a better NPS leads to better business performance. Promoters spend more, tell others about their positive experience, and are less likely to switch providers. This has been shown consistently across disparate businesses and sectors from insurance and credit cards, telecommunications and healthcare, technology and global shipping services.
Many companies that are using NPS or equivalent metrics as a business management tool are beginning to understand that the results are not just of use in terms of sales and marketing, they can also offer the financial markets an insight into the potential within a business if reputational targets are achieved or improved upon. So, for them, a business that is being managed on the basis of maximizing customer satisfaction (whether those customers are the general public or other businesses), is a business that will be taking market share, will be making more money, and should be achieving a premium rating.
The next step to tying reputation to financial performance may well then rest with the investors themselves or the sell-side analyst community. Our recent survey of global investors, covering many of the same markets as covered in this study, showed how important non-financial factors are to investor decision-making, with corporate strategy and quality of management the key issues for many. But it is hard to define exactly what quality management is or represents. Corporate reputation is most definitely one of the factors but how should this be defined? This Reputation Impact Indicator study provides us with some insights and as more begin to learn from the relatively few examples, it should become the norm rather than the exception for the CEO, CFO, or Head of IR to be asked on an earnings call
“So what happened to your key reputational KPIs in the quarter and what are you doing to improve them?” Because reputation can be the key to buy, sell, or hold.
This article is a part of MSLGROUP’s Reputation Impact Indicator Study – a major global survey and report that combines both intuitive and rational dimensions when studying the reputation of leading multinationals.
Prior to joining CNC, Kevin was a partner at M: Communications, where he was responsible for developing multi-disciplinary communications solutions for international corporations addressing investor, media and wider opinion former audiences as well as the IPO practice. Previously he was MD of the international business of Dewe Rogerson and Citigate Dewe Rogerson and has worked with a number of financial and corporate PR businesses as a management adviser.