Financial analysts believe companies which fail to look after their reputation will ultimately suffer financially while poor corporate governance and a lack of transparency have caused them to issue negative ratings, according to a major global survey of this influential group.
"Return on Reputation", the latest in the Hill & Knowlton (H&K) series of Corporate Reputation Watch studies, was conducted with public opinion research firm MORI, which surveyed 282 financial analysts in North America, Europe and Asia Pacific on reputation and its impact on their opinions and ratings of companies. In Asia Pacific, a total of 63 analysts were surveyed covering Hong Kong, Japan, Australia and Singapore.
The survey also reveals that Asia Pacific analysts pay even closer attention to high standards of corporate governance and transparency than their counterparts elsewhere in the world.
The survey provides insights for management of publicly listed companies into the tangible as well as intangible factors which drive analysts' recommendations to invest in a company or sell.
The most important criteria are financial performance (87% globally and the same proportion in Asia Pacific), quality of the leadership team (86% globally and 88% in Asia Pacific) and making good on promises (85% globally and 87% in Asia Pacific) – these were all listed as very or extremely important.
Issuing a clear warning that their focus is no longer solely on tangible factors such as balance sheets and assets, analysts overwhelmingly believe reputation also affects financial performance.
The great majority (88% in North America, 91% in Continental Europe, 93% in the UK and 94% in Asia Pacific) agree that a company that fails to look after its reputation will ultimately suffer financially.
The "Return on Reputation" study found that transparent disclosure as well as clear and consistent communication with key stakeholders were widely influential non-financial elements affecting analysts' assessments, 93% globally agreeing that each of these factors contributed to their assessment of a company's value. Both ranked high (88% and 79% globally, 89% and 83% in Asia Pacific respectively) in causing respondents to give a company a negative rating when done poorly.
A "clear path or strategy" (87% extremely or very important in all markets) and "achieving the milestones against that strategy" (86% extremely or very important globally, 79% in Asia Pacific) were rated as the most important ite to communicate to the investment community.
Among the key findings impacting companies in Asia Pacific is that analysts around the world feel that in general, Asian companies are not as good as they should be in providing sufficient information to enable analysts to judge financial performance. Some 32% of analysts globally said that companies in the region did not provide enough financial information, compared with just 10% for European companies and 4% for North American companies. Only one-third of analysts in Asia Pacific feel local companies provide enough information to judge financial performance, far below the 95% of analysts in the US and 82% in the UK who are satisfied with companies in their region.
"While Asia Pacific reflects many of the findings found in major Western financial markets, there is often a time lag in adoption of global best practice. This provides ‘communication arbitrage' opportunities for local companies prepared to embrace best practice in communicating with the investment community," said Vivian Lines, President and Chief Operating Officer of Hill & Knowlton Asia Pacific. "There is clearly an opportunity for local companies who have put in place strong business and financial fundamentals and are prepared to communicate these."
The survey results give guidance about what and how Asia Pacific companies need to communicate with analysts in the region and abroad. Key drivers of reputation in Asia Pacific are corporate strategy, quality of leadership team, financial performance, making good on promises and growth potential.
The study found that across the globe the C-Suite's reputation, consisting of the CEO, CFO and COO, were more important in influencing analysts (96%, 95% and 90% respectively rating them as fairly, very or extremely important) than business unit leaders (81%), the company Chairman (76%) or the independent Board of Directors (68%).
Nearly half (46%) of analysts surveyed said that a CEO should be allowed a year or less of consecutive bad quarters before they should be replaced. In Asia Pacific, analysts are even less harsh on a CEO's poor performance – 44% would allow five or more bad quarters or sets of results compared with 29% of analysts globally. This may reflect the tough economic times that some Asia Pacific markets have gone through in recent years.
