How Understanding Sentiment and Improving it will Impact Positively on the Value of Your Company!
Like many of you reading this, I was taught basic demand and supply economics at school. Whilst our understanding of economics was greatly extended through our university days and we applied complex research modeling skills in our professional lives, there is and will always be a great divergence between how a company is “valued” by the stock market and its stakeholders compared with what a balance sheet says or a price to earnings ratio implies.
It has been my experience that most fund managers and stockbrokers worth their pinch of salt will tell you that non-financial factors are absolutely paramount to their investment decisions or whether they recommend stocks. Overwhelmingly this comes down to how they rate management, how they view the Company’s communications, its investor relations programs and its credibility. These non-financial factors drive perceptions and sentiments towards a company and unless these are understood and addressed, a company will always languish behind its peers.
A company needs to understand its stakeholders. It needs to reach out to shareholders, fund managers, research analysts and stockbrokers. It must identify what the sentiments are towards their company. One way to do this is by undertaking a “Perception Audit” through an independent survey to ascertain important feedback and how your company is being perceived across a range of key areas thus affecting underlying sentiment. Often I find that stakeholders simply don’t understand a company’s communication, its key value drivers and that it has lost credibility through an “over promising and under delivering” history.
Building stakeholder relations and establishing key communication disciplines is paramount to any effective investor relations strategy. Initiating a more proactive and disciplined approach to your company’s communications will be well received by the financial community including existing and prospective shareholders.
How your Company is perceived through its media relations and how it has handled any crisis management in the past also drive key underlying perceptions and sentiments. Be proactive and be prepared. Keep your stakeholders fully informed and make sure that the media and any other influencers are armed with all the necessary facts so that your Company is not misrepresented or misunderstood.
As a CEO or Managing Director your life will be so much easier if you not only run your business effectively but if you also work at addressing stakeholder perceptions and sentiments. Happy shareholders are well informed, never surprised and confident in management and their corporate communications. Don’t sit back and expect that simple economics will translate into an accurate valuation of your business. The market can be efficient if it is well armed with the right information and communicated with in a credible manner. Employ experts that can help you achieve this and never underestimate the power of sentiment on the value of your business.