What happens if you miss consensus?

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CFOs are obsessed with meeting consensus – so obsessed, in fact, that they are often willing to make decisions that could damage their company’s long-term performance in order to make sure they don’t miss it.

Yet research shows that the stock price of companies which employ earnings management to meet consensus perform worse in the following year than honest companies that miss consensus.

CFOs are obsessed with meeting consensus

Research by a team from Columbia Business School has found that most CFOs would choose to make decisions that could destroy corporate value rather than miss analysts’ consensus.

As a result, they would carry out earnings management to meet consensus – at the expense of their company’s long-term performance.

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For example, 80% of CFOs said that they would decrease discretionary spending to meet an earnings target – even though they accepted that such actions can destroy corporate value.

And 55% said they would delay starting a new project to meet an earnings target, even if such a delay can destroy corporate value.

Several interviewed CFOs candidly acknowledged that they have made real corporate sacrifices to hit an earnings target.

Is this obsession justified?

What proportion of companies miss consensus?

An analysis of 180,000 quarterly results over a 17-year period found that:

  • 13% of company results reported an EPS that met analyst consensus precisely
  • More than 25% of companies beat consensus by $.01 – $.03
  • Combined, this means that almost 40% of companies met or marginally exceeded consensus
  • Whereas just 15% of the sample missed consensus by $.01 – $.03

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So, if you miss consensus marginally, you are in the company of a small selection of poorly-performing companies.

And – to make matters worse – everyone will assume that you did everything possible to meet consensus but failed – creating doubt about your underlying corporate performance and management competence.

So what is the impact if you do?

What is the short-term impact of missing consensus?

In another analysis, a team from the University of Chicago School of Business found that:

  • Stocks of companies that hit consensus rose by 1.6% on average over the 3 months ending with the earnings announcement – reflecting investors’ response to management guidance and analysts’ forecast revisions made prior to the final results.
  • Those that missed consensus dropped by 5% on average.
  • Those that beat consensus increased by 5.5% on average.

Yet within those averages, there is a wide disparity

In fact, research also suggests that some companies get hit hard yet others are not affected at all.

What creates the greatest stock price declines after missing consensus?

Investors respond differently to earnings misses for different companies at different times. Some are punished severely while others escape unscathed. And, interestingly, the size of the consensus miss had only marginal impact on stock price movement.

The Chicago School of Business analysis found that two factors had the greatest impact on the stock price declines of companies that missed consensus:

  1. Weakness in Company Fundamentals

If the consensus miss is disclosed with a disappointment in sales, cashflow, margin – or with a downbeat management outlook – it invariably leads to significant loss of share price.

  1. High Growth Expectations

The team at Chicago ranked the companies that missed consensus according to their market-to-book ratio (the ratio of the forward-looking stock price to the historical-based book or equity value per share), and they found that:

  • Companies that missed consensus, but had low prior growth expectations, experienced a stock price decline of -3.6%.
  • Companies that missed consensus, and had high prior growth expectations, experienced double that decline: -7.3%.

In short, high-growth companies are hit twice as hard as low-growth companies when they miss consensus.

And overvalued stock is hit the hardest.

As a result, it is not in the interest of any company to employ earnings management that camouflages weakness in corporate performance.

In fact, research suggests that companies that are honest to the markets about their performance achieve superior stock performance that those which choose to camouflage corporate weakness with earnings management.

What is the long-term impact of missing consensus?

Sanjeev Bhojraj and a team from Cornell examined what happens to companies that miss the consensus estimate by a penny – without employing earnings management.

They identified such companies by tracking unusual changes in the major expense items that commonly reflect earnings management – accounting accruals, R&D, advertising expenses etc.

They found that manipulating companies that beat consensus received a temporary 3-4% increase in their stock price – but had lost it all by year-end.

But companies that missed consensus by one penny without manipulating earnings did not receive any decline in stock price in the short-term – and a year after the consensus miss, their stock price had increased significantly.

Honesty Pays

It is most likely that you will risk missing consensus sometime, if you haven’t already.

According to an analysis by Morningstar, for example, just 3% of companies have reported an increase in EPS consistently over a 10-year period.

And only 3% have reported an increase in free cash flow consistently over a 5-year period.

So you will probably miss consensus one day.

But earnings management can both damage your stock price and erode your corporate value.

As a result, rather than camouflaging weak performance under earnings management, companies are advised to communicate the issue to the markets with a clear plan to address the weakness.

If you deliver on that plan, your stock will emerge stronger.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

Is the growth of Passive Investing distorting stock prices?

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The extraordinary growth of Passive Investing in recent years has resulted in the main Passive Managers – BlackRock, Vanguard and State Street – becoming some of the biggest investors in a disproportionate number of company stocks.

Recent research identified the scale that these ‘Big Three’ Passive Managers now control:

BlackRock, for example, had a 5% shareholding (or more) in about two thousand companies in the United States – out of only 3,900 publicly listed U.S. corporations.

Which means that BlackRock holds 5% blocks in more than a half of all listed companies in the US.

Vanguard had 1,855 five percent blockholdings worldwide, of which around 1,750 were in U.S. listed companies – accounting for 45% of all US listed companies.

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Amazingly, the ‘Big Three’ combined constitute the largest shareholding block in 1,662 companies – or 40% of all listed companies in the United States. And their mean ownership accounts for more than 17.6% in each of these companies.

Within the S&P 500 specifically, the ‘Big Three’ combined constitute the largest owner in 438 of the 500 most important American corporations – around 88% of all member firms.

These 438 corporations account for about 82% of S&P 500 market capitalization.

This is an enormous concentration of ownership, a concentration that is at risk of distorting the stock markets, the investment industry – and the way that CEOs and Corporate Boards need to manage and direct the companies that they represent.

Because, unlike Discretionary Investors, Passive Investors neither measure nor trade stocks based on Company Fundamentals.

They have limited engagement with the companies that they invest in.

And when Activists get involved, Passive Managers support Activists in around 50% of proxy votes.

This creates serious implications that companies must respond to as a matter of urgency – and fiduciary duty.

For much more detail about “The Rise of Passive Investing – and how Companies should respond”, you can download a complete, complimentary copy of our latest Reputation Report on the subject by clicking here.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

The dramatic impact of ‘CEO Behaviour’ on company performance and valuation.

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The #MeToo movement and the relentless exposure of exploitative behaviour from senior business leaders has highlighted the importance of CEO values and behaviour in business today.

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A recent study examined 325 separate instances of executive indiscretion, in order to analyse whether they led to any consistent, measurable business impact.

Their conclusions are extraordinary:

“We find that companies of accused executives experience significant wealth deterioration, reduced operating margins, and lost business partners.”

But that’s not all.

“Indiscretions are also associated with an increased probability of unrelated shareholder-initiated lawsuits, DOJ/SEC investigations, and managed earnings”, they explain.

“Further, CEOs and boards face labour market consequences, including forced turnover, pay cuts, and lower shareholder votes at re-election.”

If that sounds extreme, let us explain.

Through Regression Analysis the researchers were able to directly quantify the Business Impact of indiscrete CEO Behaviour:

  1. CEO Behaviour Directly Impacts Their Corporation’s Market Cap

The study found that the announcement of CEO indiscretion leads to a median decline in Market Cap of 4.06% – amounting to an average decline of $226 million for the analysed sample.

wppBut these indiscretions are not just associated with short-term stock price damage, however.

In a separate, earlier part of the analysis, the researchers had discovered the Stock Price at companies that suffered from CEO indiscretions fell by between 11% and 14% over the subsequent 12 months.

So the impact was significant in the short-term – and even more significant over the following 12 months.

  1. CEO Behaviour Directly Impacts Their Company’s Business Performance:

It wasn’t just the Share Price that was hit. Overall Business Performance suffered as well.

According to the researchers:

“The firms in our indiscretion sample exhibit significantly lower operating performance than their industry- and performance-matched peers in the year of the indiscretion”

In fact, they found that CEO Indiscretion led to a decline of 5% in Operating Profit versus their peers.

This was for many reasons, but two of the most significant were these:

Clients

CEO indiscretions lead to a 2.1% lower likelihood of their Company acquiring additional major customers in the year following announcement, and:

Business Partners

CEO indiscretions lead to a 5.1% lower likelihood of their Company initiating a new Joint Venture in the year following announcement.

Both Clients and Business Partners were less willing to partner with the companies that suffered CEO Indiscretion.

And the reason for this was critical.

  1. CEO Behaviour Directly Impacts Corporate Reputation:

The Direct Costs incurred by the impact of Indiscrete Behaviour are not material, the study found.

But the Indirect Costs are substantial.

This is for one critical reason:

“For the majority of indiscretion types, reputational costs are the dominant factor”, the researchers conclude, explaining that “a significant portion of the loss in firm value is due to the reputational capital lost when an indiscretion is announced.”

Consequently, among all the distinct misbehaviours exhibited by their sample, one had a much more dramatic impact than any other.

‘Substance Abuse’ had no material effect.

‘Sexual Misadventure’ was minimal.

Even ‘Violence’ caused little impact.

But there was one misbehaviour that accounted for the greatest Business Impact by far:

‘CEO Dishonesty’.

In fact, CEO Dishonesty led to share performance that is 3.9% lower than any other indiscretion.

In an interview explaining their findings, one of the lead researchers – Adam Yore of the University of Missouri – concluded that:

“Our research certainly suggests shareholders and potential business partners perceive that someone who is duplicitous in his or her private life could be more willing to mislead professionally,”

His conclusion was simple:

“Personal integrity at the top matters.”

As ever – CEO clarity, consistency, honesty and integrity are the most fundamental values of all.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

How a company’s ‘Corporate Purpose’ improves its stock performance.

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Recent Analysis finds that 2 components are critical for successful Corporate Purpose projects.

A new research study that has just been summarised in a recent issue of the Harvard Business Review analyses the power of Corporate Purpose to influence a company’s financial performance.

The study analysed 429 companies, carried out proprietary research among more than 450,000 employees, and their findings are fascinating.

Here are just three of their most significant conclusions:

  1. A strong sense of Corporate Purpose does not lead to any improvement in Financial Performance on its own

Companies with a strong Corporate Purpose were judged by their employees’ agreement with statements such as “My work has special meaning; this is not just a job”; “I feel good about the way we contribute to the community” and “I’m proud to tell others I work here”.

Although such companies generated a strong sense of purpose among their employees, and created a workforce that was motivated and engaged, the study found that such companies “weren’t correlated with firm financial performance in either direction”.

In short, strong Corporate Purpose on its own has no significant effect on a Company’s Financial Performance.

But when Corporate Purpose is combined with one other critical Corporate quality, the effect is transformational.

  1. When Corporate Purpose is combined with Management Clarity, however, it significantly improves both Financial Performance and Stock Returns

In companies where strong Corporate Purpose was combined with Clarity of Management Leadership, there was a significant financial impact.

Management clarity was measured by employee comments like: “Management makes its expectations clear” and “Management has a clear view of where the organisation is going”.

The report finds that Companies which combine these two dimensions – Corporate Purpose plus Management Clarity – “exhibit superior accounting and stock market performance”.

In fact, the report found that “a portfolio of high ‘Purpose-Clarity’ firms earn significant positive risk-adjusted stock returns in the future, up to 7.6% annually”.

But it is not simply the combination of Corporate Purpose and Management Clarity that drives this dramatic change.

There is one more critical ingredient that drives Corporate Performance.

  1. ‘Middle Management Engagement’ is the most critical influence in the successful conversion of Corporate Purpose into superior Financial and Stock Performance

Not surprisingly, the research found that “the more senior the employee, the stronger is the perceived purpose of the organisation”, because most senior employees are more involved in the development of Corporate Purpose – and are often incentivised according to its principles.

More significantly, however, the research also found that “it is solely the middle managers and salaried professionals that drive the relation between high ‘Purpose-Clarity’ organisations and financial performance.”

This is because middle management drive the day-to-day decision-making that enables Corporate Purpose to be put into Corporate Practice.

Or, as George Serafeim, one of the authors of the report summarised – middle managers can become:

“Managers who buy into the vision of the company and can make daily decisions that guide the firm in the right direction.”

They convert Management Clarity and Corporate Purpose into day-to-day decision-making:

“This clarity enables the translation of purpose from an abstract idea to specific actions that employees have confidence will be recognised (and rewarded) by their superiors”.

Like many similar analyses, we see that grand statements of Corporate Purpose are worthless without real Employee Engagement translated into daily actions.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

How ‘Management Credibility’ transforms stock valuations.

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Many of the CEOs that we advise feel initially uncomfortable dedicating time to develop their own Positioning and Presentation.

Until we show them the data.

Our own proprietary research places Management Credibility as one of the most critical criteria for judging the value of companies – across both buy-side and sell-side analysts.

And a wide variety of external sources consistently endorse the importance of company leadership.

Here are just eight examples:

  1. ‘Management Credibility’ is the No.1 driver of Investment Decisions among the Buy-Side, and the No.1 influence on Recommendations for the Sell-Side.
  2. In a well-regarded research study, CEO Perception alone influenced, on average, 31.5% of every Analyst’s Investment Decision.
  3. Analysts say that their confidence in the effectiveness of a Corporation’s Leadership will justify them paying a Price Premium of 15.7% on the Company’s Stock.
  4. Equally, those same Analysts say that perceptions of Ineffective Leadership would lead to them Discount the Stock Price by 19.8%.
  5. Together, that Premium and that Discount mean that: perceptions of a Corporation’s Leadership will result in a 35% Variance in their Company’s Stock Price.
  6. Earlier research carried out by one of the world’s most respected specialists in CEO Value discovered through regression analysis that – on average – a 10% improvement in a CEO’s Reputation creates a 24% increase in Market Cap.
  7. Yet another recent Study found that ‘Positive CEO Media Coverage’ results in an additional 7-8% in their Corporation’s Stock Returns.
  8. In one more Global Research Study, Company Employees in 19 countries variously estimated that their CEO’s Reputation accounts for somewhere between 25-60% of their Corporation’s Market Value.

There are many, many more reasons for every CEO to think carefully about how they Position and Present themselves to all their Stakeholders.

But the most important is this:

If they don’t, they are failing their Shareholders.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

How CEOs should engage with Analysts.

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Our latest research provides clear guidelines to help CEOs create more valuable Analyst relationships.

Research has consistently confirmed that perceptions of Corporate Leadership is the No.1 most important influence on Investment Decisions and Share Valuation.

But our most recent research confirms that CEOs do not control the management of Analyst relations with the same discipline as they manage many other – less critical – parts of their executive responsibilities.

We carried out a series of confidential interviews with a representative sample of Buy-Side and Sell-Side Analysts who cover Asia-based Corporates.

Our aim was to identify the most persuasive influences that shaped their positive and negative impressions of CEOs.

And we found that Analysts were consistent and crystal-clear about their requirements from CEO engagement:

10 Principles For Effective Analyst Engagement

Throughout all our interviews there were 10 core principles that consistently created a perception of ‘CEO Added Value’ – regardless of sector.

Different Analysts gave different priorities to each characteristic, but the core guidelines were always the same.

These principles are detailed here, with the relative importance of each principle ranked by qualitative evaluation:

  1. Strategic Clarity

Most important of all, Analysts gave a much higher value to CEOs who were able to communicate a clear, compelling rationale for their Strategic Decisions.

This Strategic Clarity demands a clear, consistent description of their primary Corporate Objective, a persuasive articulation of their Strategic Options, an Option Analysis including their respective upsides and downsides – resulting in a clear, powerful support for their chosen Strategic Direction.

Analysts attributed a significant Premium to those CEOs who delivered impressive Strategic Clarity – and a significant Discount to those who were less effective.

  1. Industry Vision

A CEO’s Vision for the future of their Industry in the mid- and long-term is absolutely fundamental.

Vision determines the potential value of the CEOs entire Business Strategy. It must shape every decision, and every value judgement.

Analysts are obviously specialists in their sector, and they encounter many different Visions of the future, and have access to all relevant data on which to make their evaluations.

Every CEO must therefore be able to clarify a persuasive view of future trends, threats, opportunities & implications, based on facts, presented with power and passion.

  1. Honest Dialogue

Analysts place enormous value on having access to open, one-on-one dialogue with CEOs.

This personal dialogue and relationship shapes trust, confidence and empathy – and enables a clearer understanding of the CEOs Vision, Strategy and Issues.

This dialogue must always be informal, unscripted, one-on-one contact – preferably face-to-face, definitely on con calls.

The CEOs who provide the most personal, unscripted access are invariably the ones who are most confident in their own abilities and decisions, and – consequently – the ones who command the highest ‘Leadership Premium’.

  1. Consistent Delivery

On many occasions, Analysts have found themselves impressed by a CEOs ability to articulate a persuasive Business Strategy based on a convincing Industry Vision – only to hear of inconsistent actions or directions with little advance notice or explanation.

This creates confusion and doubt.

Analysts fully appreciate the need to move fast in order to seize opportunities or mitigate threats.

But they frequently hear of Management Changes, for example, with no warning or explanation.

Not only does this make them doubt the decision, but it also undermines their CEO confidence.

Analysts have most confidence in CEOs who deliver management actions that directly relate to their Vision and Strategy.

And if there are necessary variations, they value advance notice and a persuasive explanation.

  1. Future Focus

The more obsessed a CEO sounds with their Short-Term results, the less confident Analysts feel about their long-term potential.

Institutional investors assign premium value to Corporations with CEOs who have identified a persuasive Industry Vision, a powerful Business Strategy – and the Management Capability to deliver.

The more focus placed on Short-Term results suggests Short-Term problems and Short-Term focus – neither of which, obviously, lead to premium Valuation.

  1. Conscious Transparency

In conversations with Analysts, CEOs often try to avoid, minimise or dismiss developments which could threaten their Vision, Strategy or Plan.

That never works.

It often makes things worse.

Analysts give much more respect to a CEO who is both alert to potential new threats and challenges, honest regarding their implications, and prepared for response.

  1. Competitive Respect

According to Analysts, many CEOs are hardwired to either dismiss the strengths of competitors, or to diminish their threat.

Obviously, Analysts are specialists in their sectors and have a full understanding of the competitive landscape. They are not fooled by a CEOs feigned confidence.

Analysts therefore place a high value on CEOs who are honest, open and respectful.

And, not surprisingly, they have greater trust for CEOs who exhibit a thorough awareness of their competitors’ strengths and threats, because they will be better prepared to defend against them.

  1. Critical Visibility

One of the most common and criticised characteristics of CEOs, it seems, is to ‘disappear’ when there are significant problems, issues or challenges for their business.

When the going gets tough, many CEOs go into hiding.

Yet these are precisely the times when CEO contact and dialogue is most critical and most valuable.

Challenges and Crises are the ultimate test of Vision, Strategy, Transparency, Authenticity and Capability.

These are opportunities to add enormous value to the CEO brand.

The more a CEO hides and avoids contact, the worse the impression of their courage and competence.

And the more they avoid direct dialogue, the more they are missing a valuable opportunity to engage, impress and add long-term personal authority.

  1. Financial Credibility

Many CEOs are more comfortable talking about Vision, Strategy, Management Actions and broad Financial Issues – but are less comfortable leading discussions that drill down into Financial Details.

As a result, they often ‘hide behind the CFO’, leaving responsibility for communication of all financial details to their CFOs.

Analysts, however, have far greater respect for CEOs who are confident debating the numbers, convincing in financial discussions.

This doesn’t mean that they have to lead all finance discussions – of course not.

But they must be happy to lead discussions about the most important financial issues, exhibiting a confident grasp of the most critical details.

  1. Corporate Consistency

It’s critical for Analysts to see the CEO’s Vision and Strategy communicated throughout the Corporation.

The Leadership team must all be aligned, consistently communicating the same principles as their CEO, and presenting Corporate Actions in the context of the Company’s Vision and Strategy.

This obviously applies to direct Analyst Communication, throughout Earnings Calls, AGMs, Conferences and Investor Websites – but also throughout all internal and external messaging.

Analysts have witnessed several occasions where the CEOs Vision and Strategy is not reflected in further Management Dialogue or Corporate Communications.

The result is simple and profound:

CEO Authority and Credibility is immediately undermined, and Market Valuation is eroded.

Analyst Engagement Demands CEO Dedication, Not Delegation.

All these principles are obvious and logical.

But it is truly amazing how often Corporate CEOs fail to follow them.

CEOs should manage their Analyst engagement with the same discipline and dedication as they manage their business.

They should not be led by their CFOs. They should not be led by their IROs. They must lead all engagement themselves.

Yet, precisely because it is one of the few parts of their role that they cannot delegate or direct, it is often one of the hardest for them to apply.

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.

The 2 most critical Investment Drivers among the Buy-Side – and what they mean for CEOs today.

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What really drives the Investment decisions of Buy-Side Analysts? And how should CEOs manage them?

An extraordinary research study among Chief Financial Officers found that ‘78% would “give up economic value” and 55% would cancel a project with a positive net present value—that is, willingly harm their companies—to meet Wall Street’s targets and fulfill its desire for “smooth” earnings’ according to Harvard Business Review.

This is absurd.

It is even more absurd when you read all the recent research into the Investment Drivers of Buy-Side and Sell-Side Analysts.

One of the most recent was released by the world’s leading research company specialising in the Investment Industry.

Rivel Research’s 2015 Global Study of the Buy-Side’s Investment Process was based on extensive interviews with Buy-Side Analysts around the world.

The research is wide-ranging, but deep inside lie some fundamental findings.

And the most fundamental of all was this:

Short-Term Numbers are not the most important drivers of Buy-Side Investment Decisions.

There are two critical influences that are much, much more influential than the Numbers.

I’ll explain what those two influences are in a moment, but first let me share some other important findings:

Big Business Issues Aren’t Necessarily Big Investment Drivers

Interestingly, the research found that many of the most important principles for Business today aren’t particularly important for Buy-Side Analysts:

  1. CSR/Sustainability isn’t important: CSR/Sustainability is clearly the least important of all the 13 Drivers, way down at the bottom of the list, scoring only 22%
  2. Attractive Dividends don’t matter much: They are equally unimportant, right at the bottom, just above CSR, with 30%.
  3. Innovation isn’t fundamental, with ‘Innovative Products/Services’ scoring only 35%.
  4. Corporate Governance isn’t critical: Corporate Governance may be increasingly important within Business today, Buy-Side Analysts don’t see it that way, with Corporate Governance scoring below 50%.

Numbers Count, But They Aren’t The Most Critical

presentation2The most important Financial Measures are  clear:

  1. Cashflow is King; a Strong Balance Sheet is Queen.
  2. Potential Revenue Growth, Sustainable Margins and Prudent Capital Deployment are all important.
  3. Attractive EPS Growth is a little way behind – and Attractive Dividends don’t matter much.

But the two most important Investment Drivers are not Financial.

They are much more important than short-term numbers.

The two most Important Investment Drivers are those that create Investor Confidence and Long-Term Value

The two most important Investment Drivers for Buy-Side Analysts were:

72% Management Credibility

69% Effective Business Strategy

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These findings are consistent with earlier Rivel research among Sell-Side Analysts, which also found that the two most important drivers of Sell-Side motivations were ‘Management Credibility’ and ‘Effective Business Strategy’:

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Rivel’s most recent study includes the findings from their latest Survey of the European Buy-Side.

And in Europe in 2016, ‘Reliable Cashflow’ was this time rated as the No.1 Investment Driver.

But both ‘Management Credibility’ and ‘Effective Business Strategy’ were ranked as equal No.2 – well ahead of ‘Strong Balance Sheet’, ‘Sustainable Margins’, ‘Attractive EPS Growth’ and other Financial Criteria:

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Without question, a Company’s ‘Management Credibility’ and ‘Effective Business Strategy’ are two of the most fundamental influences on all Investment Decisions, for both Buy-Side and Sell-Side.

Which leads to one obvious conclusion:

Listed Corporations must be much as obsessed with creating confidence in their Management Credibility and their Business Strategy as they are with delivering their Short-Term Numbers.

This raises some interesting questions for most CEOs:

  • How much of your time do you spend building your own Management Credibility and shaping your own Personal Brand?
  • How much of your time do you spend building and communicating your Business Strategy, as opposed to implementing it?
  • How much of your attention in Analyst Meetings and Earnings Calls is devoted to the Numbers, as opposed to the most important Investment Drivers of all: Management Credibility and Effective Business Strategy?

Reputation is a Research and Strategy Consulting Firm that advises CEOs and Boards of Public Companies how to achieve Fair Valuation for their Company’s Stock. 

If you would like to discuss how we can help you achieve Fair Valuation for your Company’s Stock, please connect with us via our website or by email to Connect@TheReputationPartnership.com.