Investor Relations Research Findings on Shareholder PR

Investor Relations Research Findings from the Academic World Show How to React to Activist Shareholder Attacks

Activist shareholders, those with shares in a company who have ideological clashes with the company, are becoming more of a problem in the corporate domain. Clashes can be centered on human rights, environmental issues or corporate political spending disagreements. The activist shareholders can stop progress when they initiate negative PR or back proxy battles.

Recently several academics studied this phenomenon to find effective means to defend the corporations. Some of what they determined was that a company’s reputation plays a big role in how well the activists attempts are received. Companies who’ve built trust with investors, including the small and individual ones, tend to weather the storms generated by activists much better. Christian Hoffmann, University of Leipzig’s professor of communication management, and co-author of one of the studies, said “There is a debate as to how important social issue activists are for companies. Our data shows they shouldn’t be discounted.”

Importance of a Good Corporate Reputation

Hoffmann and colleagues at BI Norwegian Business School, Peggy Simcic Bronn and Christian Fieseler, ran comparisons of the reputations of high-profile U.S. firms between 2011 and 2013 that showed vulnerability to proxy challenges. They found that a good corporate reputation offers two advantages against such challenges by reducing the success rate and frequency of proxy fights.

Corporate challenges from activist shareholders use time spent by the IR team, create negative PR, and increase expenses overall. Hoffmann said, “If corporations have a questionable public reputation in the domain of social issues, that may affect shareholder relations. These activists are frequently motivated by public affairs or PR concerns. More and more, PR concerns affect IR.”

Social Media Interactions

Of note, social media can be a powerful tool, but is more successful when the corporation has a more progressive social standing. If a high-tech company uses snail mail and email rather than Twitter notifications and such, investors don’t respond as quickly and feel a “disconnect” between the company and how they communicate with investors. Alternatively, a company with very little internet or social media presence will create a less significant disconnect if they use Twitter or other social media site to connect with their investors. Finding the right fit is important.

Bradley Bennett, co-author with Hoffman, and assistant professor of accounting at UMass Amherst, said, “That means some combinations of persona and push technologies may be more or less effective at communicating timely information to non-professional investors.”
Bottom line – build a strong connection through IR with all investors, and create ethical and transparent business practices for investors to see.

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