You're saying it. Are investors hearing it?

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In the loop , PwC US Feb 05, 2020

What you need to know

  • Investors and other stakeholders are increasingly leveraging technology to analyze company communications and make decisions.
  • Ineffective communication can impact how stakeholders view a company.
  • Companies can use technology to proactively enhance their communications with investors and gain a better understanding of marketplace perceptions.

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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.

Investors are listening—closely

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.

The risks of poor communication

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.

38% of investors trust the information companies report on strategic goals, risks and KPIs enough to be confident in their analysis and decision making; 28% of investors believe management is sufficiently transparent about the metrics they use internally to plan and manage their business
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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

Companies are responding

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:

  • Machine learning and natural language processing tools allow a company to test the potential market impact of its language before releasing it.
  • Investor perception studies provide an independent, third-party evaluation of the effectiveness of a company’s investor communications.
  • Predictive analytics allow a company to monitor large quantities of information from external sources (e.g., social media, analyst reports) to better understand the potential impact of communications to investors.
  • Advanced customer relationship management technologies track and manage stakeholder interactions with the goal of making engagement with key stakeholders more strategic.

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.

To have a deeper discussion, please contact:

Heather Horn

US Strategic Thought Leader, National Professional Services Group, PwC US

Email

Brett Harrington

Partner, PwC US

Email

Gregory Johnson

Director, US National Professional Services Group, PwC US

Email

Contact us

Heather Horn

Heather Horn

US Strategic Thought Leader, National Professional Services Group, PwC US

David Schmid

David Schmid

International Accounting Leader, National Professional Services Group, PwC US

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