The True Value of Investor Perception Studies

By Barry Hutton, Senior Vice President, ICR

The concept of an investor perception study is familiar to most IROs, C-suite executives and boards.  Yet, the true value of a well-designed and optimally executed perception study remains a mystery to many of the corporate leaders it’s able to help the most.

The common misconception typically is, “I already talk to the Street regularly, so I know what our investors think”.  Which leads to the question, “If I had a third-party perception study done what value would it add?”

As a strategic communications and advisory firm, ICR has executed hundreds of perception studies. Almost without fail, each one uncovers an aspect of the company story – or the Street’s perception of the story – that management did not realize impacted its stock performance.  This is the insight that empowers the IRO and drives significant improvements across the IR program.

The perception study provides the IRO with influence to the C-suite/board
A third-party perception study provides the IRO with significantly greater influence with the C-suite and board because it overcomes three important limitations of normal-course-of-business investor conversations:

• Who you are talking to – The vast majority of IR conversations are with a self-selected and inherently biased segment of the Street – the people who already own/cover the stock; plus a smaller group that has already shown a level of interest. In contrast, a third party perception study will specifically reach out to the most important and influential audience – the investors/analysts that should be active in the stock today, but aren’t for reasons the company does not know.  Although this audience is on the sidelines, it is still actively evaluating and talking about your company – thus exercising influence without your company’s direct input.  If the perception study helps engage this overlooked audience, the visibility or trading activity in your company’s shares may increase significantly.

• How many you are talking to — Management often downplays the feedback received during typical IR conversations as a one off comment or the barking of an upset investor/analyst, “That’s just XYZ Capital, they always complain about that topic”. In doing so, the collective view is missed and IR program improvements are never made.  In contrast, a perception study provides a current, full and unbiased view of the Street’s feedback.  The management and the board will definitely take notice when the IRO presents a well-documented study representing a large portion of the ownership/analysts.

• When you are talking to them — The majority of typical IR conversations take place during earnings season, after a major company announcement or as part of an NDR/conference. In each situation, both management and the Street are mostly focused on short-term results and rushing to complete the day’s busy schedule.  In contrast, a well-executed perception study specifically explores multiple long-term strategic questions such as: is the company clearly communicating its priorities, does the public disclosure adequately show business execution and can the business model evolve as the industry changes over time.  Only with this insight can the company design a sustainable IR program that can be effective today and in future years.

The perception study is a catalyst for improving the IR program
In a typical conversation, investors and analyst will generally “play nice” to avoid offending the company or risk losing future access to management.  Meanwhile, the Street’s true concerns are whispered to analysts and investors.  This leaves the company with little opportunity to understand or respond to underlying issues.

As the perception study is conducted by an outside agency, opinions can be anonymous and the Street is free to provide very honest and candid feedback.  As a result, the company gains very direct and actionable information that can drive meaningful improvement to the IR program and, over time, the performance of the stock.

Just as companies regularly conduct independent, third-party customer (even employee) satisfaction surveys, so too should they with investors.

A few examples:

• One mega cap company had 20+ covering analysts, did IR travel each quarter and hosted an Analyst Day periodically, leaving management believing they were doing a great job of communicating. However, the perception study found the company’s communication was robust, but it was not clear.  In fact, one-third of the Street felt the company had not clearly articulated its strategic objectives (other than to be the largest company in the industry).  Another one-third of the Street did know the company’s objectives, but believed the company did not have the core competency or resources to execute effectively.  By implementing the perception study’s recommendations, the company was able to better communicate its strategic plan, disclosed new business metrics to show operating progress and provided specific timeframes to reach key milestones. In other words, the company built a path towards achieving credibility with the investor community.

• Street feedback in another study was very critical of the CEO’s personal style when it learned “Talking to this CEO is painful because he talks down to us, as if we aren’t smart enough to understand the business”.  In response, the CEO committed to one-on-one public speaking training and took future Q&A preparation much more seriously and respectfully.

It’s hard to imagine an investor or analyst giving that critical feedback directly to company management.  Yet, it’s clear that these are the perceptions – real or not – that actively work against the company’s effort to achieve full valuation.  Real and valuable change can only occur after the company recognizes the true extent of the investor sentiment.

The perception study increases the company’s shareholder responsiveness
Today’s environment is filled with increasingly frequent shareholder activism and contested proxy votes.  These are external and non-core business problems, but they can seriously damage the ability of management and the board to run the company effectively. To avoid these pitfalls it’s absolutely critical that the management team and board are viewed as responsive to their investors.  Conducting a perception study is one way to demonstrate the company is genuinely interested in hearing what investors think and fulfilling its fiduciary responsibility to properly serve shareholder interest.

Increasingly, companies are filing proxy documents that describe their IR programs including which executives participate in what type of events.  Additionally, they specifically point to the “voice of the investor” when making certain IR program changes, such as: “Many investors have asked for more transparency regarding our progress.  So we’ve included additional operating metrics in our press release and investor presentation.” This indicates that they’ve listened to the financial community and responded accordingly.  This clear shareholder responsiveness can influence the company’s corporate governance record, its proxy vote and board member elections.

Collectively, ICR has worked with over 500 companies throughout their lifecycles and transformations; providing IR, capital markets and PR services. Members of the senior team have worked as sell-side analysts, institutional investors and internal IROs.  This enables ICR to truly understand the Street’s perspective while also recognizing the needs of the company.  By reaching an understanding and achieving a balance between all audiences, ICR’s perception studies help IROs to gain valuable insight into the Street.  This insight gains influence with management/board, drives meaningful change and signifies shareholder responsiveness.