2017 Edelman Trust Barometer Special Report: Investor Trust Executive Summary

2017 Edelman

Trust Barometer

Special Report:

Institutional Investors

Executive Summary |

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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/

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https://www.edelman.com/trust2017/institutional-investors/

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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

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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



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 1 i n 2investors 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


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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


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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%

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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


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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

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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.

5759

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


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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

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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:

Deb Wasser, Executive Vice President,

U.S. Investor Relations Practice Lead,

212-704-4588 or [email protected]

Julia Sahin, Account Supervisor,

212-738-6131 or [email protected]

2017 | Edelman Trust Barometer | Institutional Investors 142017 | Edelman Trust Barometer | Institutional Investors

https://www.edelman.com/expertise/edelman-financial-communications-special-situations/

http://www.edelman.com/practice/digital/

http://www.edelman.com/practice/public-affairs/

http://www.edelman.com/expertise/employee-engagement/

2017 Edelman Trust Barometer Special Report: Investor Trust Executive Summary

Investor Relations

Transcript of 2017 Edelman Trust Barometer Special Report: Investor Trust Executive Summary