“Building a good reputation might sound like a daunting task. It’s up to you to show investors and the rest of the world what’s behind those black and white dollar signs.”

Are all corporate earnings created equal? Not according to a recent Wall Street Journal article that reports investors are starting to raise the bar by placing noticeably more emphasis than last year on the old adage that it’s about quality over quantity. According to the piece, some of the biggest names on the S&P 500, including Twitter and Yahoo, have actually seen share prices decline after their latest quarterly earnings release, even when the numbers were right in line with or exceeded analysts’ expectations.

There’s growing evidence that a paradigm shift is taking place when it comes to market capitalization. But what’s it all about? Certainly, growth is growth, and that’s all well and good. But for investors looking ahead, there’s more to it than simply proving that you made some money this time around. They want to see what’s driving that growth and, more importantly, whether or not it’s sustainable. They want to know that the company is forward-looking and the business model is adaptable as markets evolve down the line. They don’t just want to take earnings at face value. They want to see what’s underneath. Is the company a known innovator and actively investing in this arena? Are there demonstrated leaders at the helm? What do employees think and say? Taken altogether, what’s their corporate reputation? The idea that reputation matters is not new by any means, but it is becoming more and more of a factor for investors trying to determine where to put and keep their money. In fact, one of the most respected investors, Warren Buffet, has been talking about the importance of reputation for years. Here are some noteworthy quotes by him on the topic:

“It takes 20 years to build a reputation and only five minutes to ruin it. If you think about that, you will do things differently.”

“It is better to buy a wonderful company at a fair price than to buy a fair company at a wonderful price.”

“Why not invest your assets in the companies you like? As Mae West said, ‘too much of a good thing can be wonderful.’”

“Time is the friend of the wonderful company; the enemy of the mediocre.”

Buffet also makes it clear that reputation without results will only get you so far.

“It is only when the tide goes out that you can see who is swimming naked.”

“When a management with a reputation of brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

Interestingly, Buffet appears to be a fan of solid journalism to boot.

“The smarter the journalists are; the better off the society is to a degree. People read the press to inform themselves; and the better the teacher, the better the student body.”

At the end of day, we all know you have to show a profit, and earnings are still the top focus for investors. But it’s consistently telling the story behind the numbers that can separate you from the pack. From a communications standpoint, failing to communicate what’s under the hood of your earnings is more than just a missed opportunity to tell your story, it’s a risk to the future of the company. According to an article written by Deloitte, a leading management consulting firm, “When tragedy and misfortune strike, some of the largest and most otherwise well-equipped organizations have realized that they overlooked reputation as a performance indicator and therefore a serious risk condition.” It goes on to say, “managing risk to reputation is about fundamental perceptions of the company’s contributions, value and strategic direction.” And that’s the truth. When the growth trajectory falters, or even in a crisis situation, reputation will determine whether or not the public (or investors) give a company the benefit of the doubt. If you’ve built a solid reputation, they’ll likely be more inclined to look at the sum total of your work rather than a single issue. Simply put, your reputation is the combined manifestation of your audiences’ (be it investors, employees, the general public) opinions and beliefs about you. In this case, we’re talking specifically about investors, who have a set agenda. It revolves around return on investment (ROI) – they put their money where they think they will receive the greatest ROI. Now we know there’s an obvious correlation – the degree of which can certainly be argued – between how investors view a company and the value of that company, but is it really a big deal? The answer is yes. In fact, a 2013 study by Echo Research and Reputation Dividend showed several major-name companies owe more than half of their market cap to reputation – Phillip Morris International, ExxonMobil and Apple to be specific, with other powerhouses like Google, Walt Disney and McDonald’s rounding out the top 10 companies on the list. The same study reported that reputation makes up nearly 22 percent of the combined market cap of the S&P 500. Convinced reputation is important yet? Well if so, you need to understand some of the building blocks of corporate reputation:

Innovation. Investors want to know that in a fast-paced world, a company is looking to the future. They don’t want to put their money in something that could crash the second the market takes a turn. A company that is profitable this year has to prove that it will be bigger and better next year. MySpace is a good example of how innovation (or lack thereof) affects investment. Remember that guy? Tom Anderson, the MySpace co-founder who sold his site to News Corp for $580 million. He’s “enjoying being retired” now. The folks at News Corp are, however, a lot less happy than Tom these days. When they sold MySpace in 2011 to Justin Timberlake and friends, it went for $35 million. That’s a far cry from the $580 million it cost to purchase the company, and those losses can be blamed, in part, on its innovation shortfalls. In the hands of News Corp, the once-trailblazing social media platform was focused on driving revenue while other startups (i.e. Facebook) were using venture money to explore and take risks. These startups created imaginative, user-friendly and modern interfaces whereas MySpace maintained a slow and clunky site. A costly mistake – six years later, that resulted in $545 million in investment losses.

Leadership and Vision. The face of a company is most often its CEO. What should a CEO do to attract investors to a company? You must be seen as a leader that can steer the company through thick and thin. As discussed in a previous article, What is Executive Voice?, the best way to establish yourself as a leader is by having a voice. And, that’s not just any voice, but a strong one. A CEO’s support is the most effective way to show that a company can uphold its values, according to 77 percent of respondents in a survey done by Booz, Allen, Hamilton and the Aspen Institute. These values could include customer loyalty, teamwork, direct communication, etc. In short, they’re attributes investors look for when deciding whether to invest in a company, and it’s up to the CEO to demonstrate said corporate values both publicly (speaking engagements, panels, etc.) and internally (staff meetings, conference calls, etc.).

Corporate Culture. Whether you realize it or not, how the rest of the world views your company starts with what’s being said day-to-day by the people on the frontline – your employees. They have opinions, and they’re most likely communicating stories about their jobs, their experiences and your business to their family and friends. For better or worse, word gets around. Even to investors. You’ve got to ask yourself: Are your employees brand advocates or detractors? Do they see jobs at your company as brain drains or exciting endeavors? There is a positive correlation between employee satisfaction and shareholder returns, according to Alex Edmans, a professor at the Wharton School at University of Pennsylvania. He found that over the four earnings announcement dates in each year, the best U.S. companies to work for earned over one percent more than firms with similar characteristics.

Emotional Appeal. This is the trickiest of all. Does your company have that “something special?” That irresistible pull? Intangible values make being associated with your company appealing to investors. Some people want to invest in a company because they like what its doing. This might sound corny, but it’s true. Large corporations that implemented corporate social responsibility (CSR) initiatives saw increased investments, according to a study published by the Harvard Business School. Another piece of evidence comes from the Bank of Finland. It looked at companies that were included or excluded from a social responsibility ranking. The bank found that stocks dropped an average of 3 percent when a company was taken off the list. When a company was added to the list, stocks went up by about 2 percent. So what do you do about all of this? How do you take control, manage and measure that all-important corporate reputation? There are few essential steps you can take:

  1. Take a long hard look at the stories already being told about your company. This can be either in direct communication with the investor audience, through analyzing earned media coverage or by monitoring social media. Does your name appear regularly in the media? Are the same reporters or outlets always covering you? What about your competitors? Getting a sense for what’s out there now is crucial to thinking strategically about the future.
  2. Evaluate the tone of those stories. Not so much what’s being said, but how they’re saying it. Is the general tone positive, negative or neutral? There’s a good chance stock prices will follow the same pattern as positive news stories. Public perception carries real weight.
  3. Don’t wait for a crisis. The biggest mistake many companies make is not considering reputation management to be important until something goes wrong. In reality, it’s often too late when a crisis strikes to mitigate reputational damage, which automatically forces you into a game of frantic cleanup and damage control. If you’ve done the work on the front-end to establish a positive reputation, it will be easier to manage the impact of a negative situation and a much quicker process of winning back investor trust.
  4. Gauge employee sentiment. Whether you think your employees are happy or not, look at glassdoor.com and other social media sites to get a sense of what people are saying about working for you. Look internally too. Issue an anonymous survey. Find indicators of your company’s reputation, and don’t ignore negative reviews. They matter.
  5. Do something good. If you haven’t implemented any CSR initiatives yet, think about it this way—How can you explain what you’re doing for the world, besides just turning a profit? Maybe your product or service has a story of helping people that has yet to be told. Get it out there. You may catch some investors’ eyes, like Ben Cohen, the co-founder of Ben & Jerry’s. He says, “What I’m looking for as an investor is to invest in companies with a social mission, where they’re looking to factor in having a positive impact on their communities.”
  6. Manage the message. Once you have an understanding of your public perception, employee sentiment and what stories you need to tell, get out and tell them. Talk about the good things you’re doing, tout your latest innovations, encourage your CEO to participate in industry thought-leadership and take control of the messages being spread around. Don’t wait for disaster to strike or earnings to be released, be proactive and take advantage of the opportunity to build positive buzz around your corporate image whenever it’s available.

Building a good reputation might sound like a daunting task. It’s made even more complicated by the fact that different audiences look for different things from a company. There is no one equation that fits all. But learning to manage the narrative around your business operations, communicate effectively with target audiences and position yourself in a way that means something to each of those stakeholders can go a long way toward enhancing corporate character, which your market cap, and even the future of your business, can ultimately depend on. In the end, it’s up to you to show investors and the rest of the world what’s behind those black and white dollar signs.

Connect With Us

Please complete the form below and we will be happy to discuss how CVIC can help your organization.