The True Value of Investor Perception Studies


The concept of an investor perception study is familiar to most investor relations officers (IROs), C-suite executives, and boards — but the true value of a well-designed and optimally executed audit remains a mystery to many of the corporate leaders it’s designed to help the most.

The common misconception typically is, “I already talk to the Street regularly, so I know what our investors think.” And that naturally leads to the question, “If I had a third-party perception study done, what value would it add?”

As a strategic communications and advisory firm, ICR has executed hundreds of perception studies. Almost without fail, each one uncovers an aspect of the company story — or the Street’s perception of the story — that management did not realize impacted its stock performance. This is the insight that empowers the IRO and drives significant improvements across the IR program. Below, we outline three specific ways those perception study results can drive value within a company.

1. The perception study provides the IRO with influence to the C-suite/board

A third-party perception study provides the IRO with significantly greater influence with the C-suite and board because it overcomes three important limitations of normal-course-of-business investor conversations:

  • Who you are talking to: The vast majority of IR conversations are with a self-selected and inherently biased segment of the Street — the people who already own or cover the stock, plus a smaller group that has already shown a level of interest. In contrast, a third-party perception study will specifically target the most important and influential audience: the investors and analysts who should be active in the stock today, but aren’t for unknown reasons. Although this audience is on the sidelines, they are still actively evaluating and talking about your company — thus exercising influence without your company’s direct input. If the perception study helps engage this overlooked audience, the visibility or trading activity in your company’s shares may significantly increase.
  • How many you are talking to: Management often downplays the feedback received during typical IR conversations as one-off comments or the barking of an upset investor/analyst. (“That’s just XYZ Capital, they always complain about that topic!”) By doing this, your company never accounts for the collective view or makes related IR program improvements. In contrast, a perception study provides a current, full, and unbiased view of the Street’s feedback. The management and the board will take notice when the IRO presents a well-documented study representing a large portion of the ownership/analysts.
  • When you are talking to them: The majority of typical IR conversations take place during earnings season, after a major company announcement, or as part of an NDR/conference. In each situation, both management and the Street are mostly focused on short-term results and in a rush to complete the day’s busy schedule. In contrast, a well-executed perception study specifically explores long-term, strategic questions (e.g., Does the company clearly communicate its priorities? Does the public disclosure adequately show business execution? Can the business model evolve as the industry changes over time?) Only with this insight can the company design a sustainable IR program that can be effective today and in future years.

2. The perception study is a catalyst for improving the IR program

In a typical conversation, investors and analysts will generally “play nice” to avoid offending the company or risk losing future access to management. Meanwhile, the Street’s true concerns are whispered to analysts and investors. This leaves the company with little opportunity to understand or respond to underlying issues.  And even worse, it can create a false sense of security that everyone is content with the status quo.

Because a perception study is conducted by an outside agency, opinions can be anonymous and the Street is free to provide very honest and candid feedback. And investors and analysts genuinely want the Company to hear this feedback – they are just often hesitant to do so directly in the most frank and honest way.  As a result, the company gains direct and actionable information that can drive meaningful improvement to the IR program and, over time, the performance of the stock.

Just as companies regularly conduct independent, third-party customer (even employee) satisfaction surveys, they should do the same with investors.

A few examples:

  • One mega cap company had 20+ covering analysts, did IR travel each quarter, and periodically hosted analyst days, leading management to believe they were doing a great job of communicating. However, the perception study found the company’s communication was robust, but it was not clear. In fact, one-third of the Street felt the company had not clearly articulated its strategic objectives (other than to be the largest company in the industry). Another one-third of the Street did know the company’s objectives, but believed the company did not have the core competency or resources to execute effectively. By implementing the perception study’s recommendations, the company was able to better communicate its strategic plan, disclosed new business metrics to show operating progress, and provided specific timeframes to reach key milestones. In other words, the company built a path toward achieving credibility with the investor community.
  • Another study was critical of a company’s CEO, with feedback such as, “Talking to this CEO is painful because he talks down to us, as if we aren’t smart enough to understand the business.” In response, the CEO committed to one-on-one public speaking training and took future Q&A preparation much more seriously and respectfully.

It’s hard to imagine an investor or analyst giving that critical feedback directly to company management. Yet, it’s clear that these are the perceptions — accurate or not — that actively work against the company’s effort to achieve full valuation. Real and valuable change can only occur after the company recognizes the true extent of the investor sentiment.

3. The perception study increases the company’s shareholder responsiveness

Today, companies see increasingly frequent shareholder activism and contested proxy votes. These are external and non-core business problems, but they can seriously damage the ability of management and the board to run the company effectively. To avoid these pitfalls, the management team and board must be viewed as responsive. Conducting a perception study is one way to demonstrate that the company is genuinely interested in hearing what investors think and fulfilling its fiduciary responsibility to serve shareholder interest.

Many companies now file proxy documents that describe their IR programs, including which executives participate in what type of events. Additionally, they specifically point to the “voice of the investor” when making certain IR program changes. They might say something like, “Many investors have asked for more transparency regarding our progress, so we’ve included additional operating metrics in our press release and investor presentation.” This indicates that they’ve listened to the financial community and responded accordingly. This clear shareholder responsiveness can influence the company’s corporate governance record, its proxy vote, and board member elections.

ICR has worked with more than 2,000 companies throughout their lifecycles and transformations, providing IR, capital markets, and PR services. More than 100 members of the senior team have worked as sell-side analysts, institutional investors, and internal IROs. This puts ICR in a very unique position of being able to engage in a conversation with investors and analysts on a highly-trusted peer basis and then to truly understand the nuance and implications of the Street’s perspective. By reaching an understanding and achieving a balance between all audiences, ICR’s perception studies help IROs gain valuable insight into the Street. This insight gains influence with management/board, drives meaningful change, and signifies shareholder responsiveness.

For additional insight into how to conduct a perception study and how it should fit into your overall investor relations strategy, download our eBook, “Investor Relations Primer: The Basics of an Effective Plan.”