What is "investment reputation" and why do companies need it?
Once Warren Buffett, one of the world’s most famous investors, said: “It takes 20 years to build a reputation and five minutes to destroy it. If you think about it, you will do everything differently.”
An organization’s reputation is one of the most influential and least measured factors in relations with investors. However, current trends indicate that many investors are paying more attention to reputation than before. After all, it is crucial to think not only about short-term profits, but also to be aware of the long-term consequences.
FTI Consulting study showed that investors’ response to the crisis is “driven by reputation more than numbers.” The study analyzed 100 corporate crises that led to warnings of a possible 12-month drop in earnings and their impact on stock prices to examine how investors may be responding. The FTI surveyed 130 investors on the main factors driving their response to earnings warnings, and found that only 28% indicated financial reasons. Other reasons included a lack of confidence in the leaders (16%), fear of bad news in the future (12%), distrust of the company (9%), the company’s experience in such situations (9%) and just “instinct” (10%). .
In other words, investors generally consider financial factors less important than reputational factors in responding to corporate crises.
One of the functions of a reputation for investors is based on the fact that a company with a strong reputation in the future will have less complexity and risks than a company that has only numbers as indicators of success, but will not necessarily have the same indicators in the future.
A company that invests in its reputation is a company that invests in its future. What are the chances that others will invest in you if you do not invest in your future? It seems logical, but many companies still fail in investment relations because they do not invest enough time, effort, attention and financial resources in building and strengthening their reputation.
Professional investors are concerned about the main numbers in business. But investment is much more than that. Investors need to trust the people who run the company. In turn, the ability to trust is based on reputation. Investors understand that financial ratio are important, but the reputation side sometimes weighs more. After all, a company that does not have a reputation that needs to be protected is a company that has nothing to lose and that has no guarantee of reliability.
Therefore, to attract investment and build relationships with foreign partners, it is essential to create a systematic reputation strategy, which will always positively impact the company’s development.
Author: Anna Stukalska