Posts Tagged ‘share price’

Just was forwarded an interesting study out of Northwestern's Kellogg school. It found that the share price of a company that is being boycotted drops nearly one percent for EACH day of national print media coverage. Ever wondered what happens when those protesters zero in on your company and tell people not to buy your products? Often I will hear the response, "The boycott is not affecting our sales so let's not worry too much about this."  However, the research uncovered that perhaps your sales are not being affected, but watch out for your reputation and stock price. Assistant Professor Brayden King found that Day One may not be as much a problem (decline of one half of one percent in share price) but there is an average decline in share price of 0.7 percent for EACH day afterwards that the company remains in the national print media spotlight.  After looking at 177 firms who were boycotted over several years (1990 to 2005), King concludes that there is a clear link between reputation and media coverage. And when you think of today with the Internet, whoah. I liked this fact -- about 25% of those companies generated a concession from the targeted company.  What does that say about the other 75%? Perhaps there are some behind the scenes negotiations that we are not privy to. And clearly companies stuck to their position if they felt they were right. Also liked this fact. King used the Fortune Most Admired Companies ranking (one of my favorites) and found that boycotted firms with a high reputation ranking generated 4.4 times the coverage generated by boycotted firms that were unranked, three times the coverage of those in the lower quartile and six times those in the middle ranking group. Essentially, the bigger you are and the more admired, the greater the coverage when boycotts land on your door. Like I often say, when you make it to the top of your industry in the Most Admired, you might as well paint a bulls eye on your back (or logo).

Globalization. Everything is different and everything is the same. In an interview with the Dean of Harvard Business School, Nitrin Nohria noted: "When I came to Harvard Business School in the 1980s, the vast majority of people were interested in studying America, because this is where they hoped to have job opportunities. As late as 1988, when I joined, less than 5% of our case [studies] were outside of the United States. Last year more than a third of our cases were global." Similarly, Fortune's Most Admired Companies survey used to be broken into the America's Most Admired and World's Most Admired lists as if they were two different beasts. Fortune now combines them into one big list of the World's Most Admired and rightfully so. As we are seeing with the ups and downs of the stock market, we are all interconnected. The reputation of UBS or Sony or Procter & Gamble matters the world over. Global everything is on my mind because I am off to Asia to give a speech on reputation and how to build it, safeguard it and defend it. I've been catching up on how reputation plays out in Asia Pacific so that I can be a bit more relevant to my audience. As I am preparing, an article I found struck me as a good example of how things are the same and yet different. As a keen observer on how reputations get damaged in a crisis, I am always on the lookout for estimates of that damage.  A recent article provided me with some valuable information on how Chinese companies perform when scandal touches them. Scandal plays out slightly differently in China and on their balance sheets than it does in the US and Europe/EMEA. An academic study examined hundreds of scandals linked to companies traded on the Shanghai and Shenzhen stock exchanges between 1997 and 2005. Revelations of financial fraud and various other similar crimes, such as embezzlement and kickbacks, definitely impacted share price as it does in the US.  The researchers found, however, that to really create a cataclysmic collapse of a company's stock among Chinese companies, there had to be an additional element. "The study found that companies caught up in mere accounting scandals saw their shares drop by an average of 8.8% over the six months on either side of the incident. In those involving the bribery of government officials or theft of state assets, on the other hand, the stock fell by almost a third." As they conclude, "In China and other less developed markets....business is done on the basis of political and social relationships, not numbers."  Companies are all impacted by financial scandal but if you undermine the government in China or any of its officials, expect that your financial damage will be compounded by losing discounted financing, access to trusted suppliers, loss of customers, land acquisitions and other benefits that can come with good government relations. Thus, being on good terms with government is critical to success in China. In many ways, this is also becoming the norm in the US as government plays a more visible hand in business affairs.

  Corporate responsibility is an integral component of reputation.  Even more so than ever because it matters to so many stakeholders – employees, customers, government, prospective talent, academics, media, bloggers and NGOs.  I think it might even matter to the financial community although perhaps to a lesser degree.  However, analysts have noticed its importance as we have seen with the proliferation of socially responsible investing funds.

In 2008, Weber Shandwick's Planet 2050 corporate responsibility and sustainability practice conducted a proprietary analysis that demonstrated the rising prominence of corporate responsibility on leadership agendas. Corporate responsibility mentions in global Fortune 100 annual report CEO Letters to Shareholders increased 18 percent from 2003 to 2007. In 2007, energy efficiency and carbon emissions were the dominant corporate responsibility agenda initiatives addressed in Global 100 CEO Letters to Shareholders. These topics barely figured in CEO annual report Letter mentions in 2003. To a lesser extent, but still noteworthy, leaders in 2007 highlighted their eco-friendly products—such as hybrid cars and healthy food products—in their Letters to Shareholders. Volunteerism, a topic featured in 2003 CEO annual report Letters, appeared less frequently in 2007.

As business leaders seemed to increasingly  commit  to corporate responsibility initiatives prior to the economic meltdown, we thought we’d look into whether such efforts helped soften the financial blow of the stock market collapse in 2008.

Using the 2008 Fortune Most Accountable Companies list as the measure of corporate commitment to social and environmental goals, Weber Shandwick explored the relationship between accountability  and stock price performance within the Fortune Global 100. The Accountability Rating was first developed by AccountAbility and Csrnetwork and designed with Asset4.  Since nearly every company on this list experienced a share price decline during 2008, the analysis focused on the average percentage change of closing prices on December 31, 2007 and December 31, 2008. It was of particular interest that 9 out of the top 10 most accountable companies were European (GE was the only American company).

We found that the top 10 most accountable global companies performed better than the overall global Fortune 500 in terms of share price and profitability.  When compared to the 10 least accountable companies, the most accountable ones performed better. We were a bit surprised by the +1% lift in profitability among the least accountable and discovered that two highly profitable companies – Petronis at #99 and Berkshire Hathaway at #100 – were on the list, therefore driving the 1% increase. Even when we take Berkshire Hathaway out of the group, the difference is not as dramatic as we expected. The nine least accountable companies fell to -3% in terms of profitability. If Petronis and Berkshire Hathaway both come out the eight least accountable companies fall to -16%.

	Total Global 500	10 Most Accountable	10 Least Accountable
Share price	-43%	-22%	-35%
Profit	+5%	+46%	+1%

 

 

 

 

The analysis shows that even in an unprecedented  year like 2008, the most responsible companies  outperformed their peers. As my fellow colleague and founder of Planet2050 Brendan May said, "It is not surprising that effective and genuine corporate responsibility impacts the bottom line, in good times and bad." Companies cannot afford to abandon their corporate responsibility efforts although it is understandable if progress slows in this economy.  Companies that abandon corporate responsibility and sustainability efforts are proof positive that it was all for show in the first place.