News Analysis: Financial comms loses City's trust

At a time when the relationship between some companies and their City investors and analysts is strained, a report has highlighted shortcomings in financial comms. Maja Pawinska investigates the implications

Accounting scandals, rows over executive appointments and salaries, and tough corporate governance codes have taken their toll on relations between companies and the City. In an attempt to halt this deepening frostiness, the CBI and the Investment Management Association (IMA) chaired an informal dinner last week. By the time the 40 suits were nursing a post-prandial snifter, they appear to have concluded that better comms between CEOs and the City was the answer.

In a joint statement after the talks, CBI director Digby Jones and IMA chief executive Richard Saunders underlined the importance of keeping channels of communication open.

This was backed up by the release of a report, carefully timed to coincide with the City pow-wow, which indicated a yawning chasm between what investors expect from company and CEO communications and what is actually being delivered.

Trust in the City was commissioned by PR agency Blue Rubicon and draws on research from Mori and PricewaterhouseCoopers. It found that the City values communication skills as the single highest attribute that CEOs can possess, well ahead of track record and financial awareness. But while half of the 101 captains of industry surveyed felt they worked hard at actively anticipating the concerns of the City and maintaining continuous dialogue with analysts and investors, an astonishingly low three per cent of investors and fund managers agreed with them.

Report author and Blue Rubicon managing director Fraser Hardie says this points to a serious investor relations problem which has been exacerbated by the new emphasis on corporate governance: 'The spotlight is on being proactive, and this has led to more, but not necessarily better, communications: box-ticking is not the same as effective comms. It has led to a very procedurally driven process, which is not helpful as it does not build trust and leads to brittle relationships. Companies need to say what they want to be famous for, and articulate with passion and flair what they are trying to do strategically as a business.'

David Williams, managing director of IMA member Sand Aire, broadly agrees with the report, but says: 'No matter how often you communicate with people and how many set-piece events you run, if they don't feel they are being communicated with then you have failed in getting the message across.

But the City is a very negative place at the moment, and it's also up to investors to say how they want to be communicated with.'

Reading between the lines, the report appears to be critical of the effectiveness of financial PROs, and the reaction from larger and more established financial PR shops has been dismissive. One prominent investor relations specialist describes the report as 'hilarious', and says he could not believe anyone 'would pay £50 to be told the bleeding obvious'.

Gavin Anderson chief executive Neil Bennett says the report fails to appreciate the pressures CEOs are under: 'Yes, CEOs do need to be communicating inside and out - it's an essential ingredient of leadership - but they need to do lots more besides. Companies need to make sure their communications are properly managed and should pay as much attention to communications as financial functions.'

Hardie's view is that part of the problem is the divorce that exists in many companies between investor relations and the other elements of the communications mix. Emma Burdett, investor relations director at financial PR specialist Maitland Consultancy, is unconvinced by the survey's findings, but agrees integration is crucial to effective CEO and corporate communication.

'We have always focused on integrated messages to integrated audiences - it's no good just targeting investors,' she says. 'Things are better than they used to be, but we still find too many companies where the investor relations team reports direct to the finance director and the rest of the communications function is completely separate. That can lead to disaster.'

The bigger picture

But despite the statistics in the survey and some very high-profile communications breakdowns over the past year between investors and companies, disaster is by no means the default situation of City communications.

National Association of Pension Funds comms director Andy Fleming points out that for every noisy shareholder rebellion that makes it to the front of the Financial Times, there are probably another dozen situations where everything runs smoothly out of the spotlight.

'I'm not aware of a huge groundswell of dissatisfaction on the part of investors about their communications with companies. The key issue is establishing good lines of communication: it's not the case that shareholders want to take a hands-on role in the running of companies, but they do want to be reassured that there is a conduit for them to raise any concerns with the board.'

The Trust in the City report may lean towards stating the obvious, and may not ring true with everyone in the financial community, but when emotions are running high there is a tendency to overlook the obvious. The CBI and the IMA clearly agree that it's time to put communications back at the heart of the relationship between companies and the City.

The main findings of Trust in the City

- The City values comms skills as the single highest attribute that CEOs can possess: nearly two thirds of institutional investors and fund managers ranked comms skills top, ahead of track record, financial awareness, vision and integrity

- When investors were asked which factors would most erode their trust in a company, lack of financial transparency came top with 62 per cent, above missing financial targets (54 per cent) and U-turns on strategy (45 per cent)

- The three main areas where corporate comms was identified as failing were: lack of unified messages to stakeholders; companies placing too much emphasis on compliance and governance rather than communication; and companies being too introspective and not creative enough in their communications

- Two strategies identified for improving communications were: 'Define what the company wants to be famous for', through mapping stakeholders, integrating communications and thought leadership; and 'become good at story-selling', by demonstrating daily excellence, and delivering messages with passion.

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