Plenty of empirical evidence shows that shareholder activists use tactics likely to damage the reputation of a company and its management. Until now, however, there’s been very little evidence on how their activities are guided or affected by the strength of a firm’s reputation. A new study finds that a good corporate name has a potent effect against at least one form of activism and suggests the need for tighter links between IR and PR.
‘There is a debate as to how important social issue activists are for companies,’ says study co-author Christian Hoffmann, professor of communication management at the University of Leipzig. ‘Our data shows they shouldn’t be discounted.’
Along with colleagues Peggy Simcic Bronn and Christian Fieseler at BI Norwegian Business School, Hoffmann compared the reputations of a sample of high-profile US firms with their vulnerability to proxy challenges from 2011 to 2013. The findings indicate that a good corporate reputation serves as a two-fold inoculation against social activists, reducing both the frequency and the success rate of proxy fights.
While the researchers find social policy proposals – typically involving environmental, corporate political spending or human rights concerns – least likely to be accepted by shareholders (especially institutions), Hoffmann says they are the most frequent form of proposal and can produce negative publicity, substantial expense and additional work for IR teams. ‘If corporations have a questionable public reputation in the domain of social issues, that may affect shareholder relations,’ he says. ‘These activists are frequently motivated by public affairs or PR concerns. More and more, PR concerns affect IR.’
Given this emerging intersection between IR and PR, Hoffmann believes IROs with a strategic, integrated perspective on communications will create more value. And that means, he says, a shift in their professional perspective in favor of more active engagement with smaller stakeholders.
‘IR tends to be aligned with institutional shareholders and capital markets reputation,’ says Hoffmann. ‘But it needs to keep an eye on the company’s overall public reputation as well.’
Corporate persona and social media
While it appears that push technologies like Twitter and email alerts benefit smaller companies, it is not clear whether these technologies benefit smaller investors. In two experimental studies, US researchers find evidence that the right alignment of communications medium and corporate persona has a powerful effect on the speed at which an investment is made.
‘Not all social communications media will fit a firm’s corporate persona,’ explains study co-author Bradley Bennett, assistant professor of accounting at UMass Amherst. ‘That means some combinations of persona and push technologies may be more or less effective at communicating timely information to non-professional investors.’
Bennett, along with Ryan Guggenmos, assistant professor at Cornell University, finds experimental subjects could detect a ‘mismatch’ when a company perceived as ‘cool’ and innovative communicates via email as opposed to Twitter. A similar mismatch is perceived when a company viewed as established and reliable communicates via Twitter. And the stronger the mismatch, the longer it takes investors to process financial information.
‘IROs may need to carefully consider whether to pursue communication and social media ‘trends’ when disseminating investor-related information,’ concludes Bennett. ‘Research in this area is starting to examine how such media may impact investors’ judgment processes.’
This article appeared in the Summer 2016 issue of IR Magazine
