Everyone’s talking about the crisis of confidence. Or lack of trust. Or just plain fear. Investors are angry with the way public companies have treated them. They consider their current equity positions to be very risky. They feel that with all the reports of accounting scandals, ineffective boards, insider malfeasance, conflicted auditors and regulatory toothlessness, it is now far riskier to bet on equities than ever before. Their portfolio values are way down and they feel that the spate of corporate scandals suggests a deep-seeded corruption in Corporate America. Of course this jaded mass perception is no longer new. What’s remarkable is how deeply and widely it has spread.
Listed companies worldwide know this problem is not limited to the US equity market. Some of the mistrust is overflowing from the US to affect other regions, and declines in the FTSE, the Dax and the Cac have more or less mimicked that of the Dow, Nasdaq and the S&P 500. This is not just a crisis for US equities, it’s a crisis for equities worldwide.
Investors and corporate executives agree there are monumental problems to deal with, though there also seems to be considerable disagreement about what those problems are. Investors generally believe they are being lied to, and that the only ones making money these days are the corporate executives (see Options… for a price). On the other hand, most executives believe it’s the misdeeds of a few that have poisoned the punch for everyone.
Former US commerce secretary Peter Peterson diagnosed ‘moral cancer’ as he took on leadership of a Conference Board panel set up to work on the crisis. His comment is at once too weak and too strong: morality is only a very small part of the problem; and the disease is not terminal.
Ironically, while investors and CEOs alike believe stock prices should be higher, shares in Corporate America have been trading at average P/E ratios well above their historic norm. They could very well continue falling, and so could those of their international peers.
As corporations worldwide are criticized for undermining public trust, calls for accountability and transparency are getting louder. And that’s where our story begins. Enter the investor relations officer.
