Listen to the audio version:
In today’s complex and technology-driven business environment, it is more important than ever for companies to effectively communicate with investors and other stakeholders. Companies are increasingly subject to activist investor campaigns, changing financial regulations, an increased focus on environmental, social, and governance issues, a changing global geopolitical environment, and in some cases, declining trust. At the same time, investors and other stakeholders are leveraging technology to quickly gather information and analyze what a company is saying or, perhaps more importantly, not saying in its communications.
Financial communications are increasingly being analyzed by computers rather than people. Technological advances have made it easier for investors and other stakeholders to quickly compile and dissect a wider range of information about a company—both written and verbal. They can now identify unclear or conflicting statements and positions more quickly than in the past.
Some investors are using language and sentiment analysis (an automated process that identifies positive, negative, and neutral opinions in a body of text) to help them make allocation and investment decisions. Investors are also using machine learning and natural language processing tools to create a reference source of a company’s commonly-used words to better understand the tone and potential implications of a company’s communications. They might also analyze the language used in earnings calls and other forums to identify deceptive responses. And, with advances in artificial intelligence, the sophistication, efficiency, and capacity of the technologies used to analyze company information continues to improve. Therefore, the words a company uses, and how they use them, are becoming even more important.
Inconsistent, conflicting, or unclear messaging can damage a company’s reputation or brand, compromise trust, negatively impact share price and cost of capital, and erode stakeholder confidence. For a majority of large buy-side investors (89%), confidence in management is the number one non-financial factor influencing their investment decision.1
Most investors (90%) say the quality of a company's reporting impacts their perception of the quality of its management.2 At the same time, investors’ trust in certain information companies report is increasingly viewed with skepticism. It is imperative that a company’s financial communications—whether through press releases, earnings calls, annual reports, investor presentations, or other means—are consistent, clear, and transparent.
1. Weber Shandwick, Report from the buy side: The power of Intangible factors on investment decisions, November 2017
2. PwC, Global investor survey , November 2017
As financial communications are increasingly consumed by technology (which drives market activity based on data analysis), companies are using technology to refine their messaging and gain a better understanding of marketplace perceptions. There are a range of tools and techniques to help with wording choices and evaluate the effectiveness of communications, including:
As technology continues to play a larger role in communicating with investors and other stakeholders, companies may want to re-evaluate the role and composition of their communications and investor relations functions as well as consider whether the governance and controls over the use of data and technology should be enhanced. In addition, companies may need to revisit the earnings release and earnings calls processes to make sure the information, and the way it is being provided, consider both a machine and human audience. The company may have a great story to tell about its growth and strategic plans. These steps will make it more likely that investors and other audiences will get the message.
For more information on communicating with stakeholders see our Point of View publications, Tomorrow’s world: Enhancing trust and transparency through communication and Your purpose, your stakeholders: What it means for reporting.