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Archives for 2010

CSR Improves Your Stock Value — Official!

responsibility improves stock valueA new joint study by the London and Harvard Business Schools has shown that having visible CSR strategies in place boosts a company’s stock price.

The study looked at 16 years’ worth of market data from the US and examined how sell side analysts reacted to CSR announcements by the companies they are following.  True to form, up until recently most sell-siders have seen CSR strategies as value-destroying and may have consequently marked the company’s share as a sell as a result.

However starting in 1997 and with increasing vigour as the years have passed, the study shows that there has been a change: analysts’ perceptions have turned around.  A company’s CSR strategies are now seen as a value creating activity, leading analysts to recommend them more often, leading to subsequent rises in their stock value.

Interestingly though, the study does not show that the reverse is true: that a lack of CSR strategies or a poor CSR record can lead to a company being viewed as value-destructive by analysts and the stock consequently being downgraded.  This more than anything else may demonstrate how the impact of CSR on a company’s market performance is still very much in flux.

Crucially, however, the study also finds that a company’s communication of its CSR strategies also affects the analysts’ perceptions.  It’s now recognised that socially responsible individuals are spread over a number of stakeholders, such as regulators, investors, consumers and employees.  It is believed the analysts take this into account and so view a stock more favourably the more CSR information there is for each of these significant stakeholder communities.

So, in brief, CSR strategies can provide stock prices with a boost, and the more visible those strategies are the bigger that boost may be.

And what better place for a company to make its policies visible than on its website?  Here documents, policies and presentations can be made available to the relevant stakeholders at a fraction of the cost of traditional media channels.  Investment in a website, it seems, can really pay off.

Picture Credit: LuMaxArt Greyguy028 by lumaxart under Creative Commons Share Alike License.

Corporate Governance, Ostriches and Black Swans

Simply put, a Black Swan event is one that has a low chance of happening but if it does the impact could be catastrophic. The most current example is the BP oil spill in the USA.

Underpinning Black Swans are some interesting philosophical and psychological factors of human frailties.

A black swan is a highly improbable event with three principal characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was. The astonishing success of Google was a black swan; so was 9/11. For Nassim Nicholas Taleb (author The Black Swan: The Impact of the Highly Improbable), black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives.

Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Taleb, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don’t know. We are, therefore, unable to truly estimate opportunities, too vulnerable to the impulse to simplify, narrate, and categorize, and not open enough to rewarding those who can imagine the “impossible.”

Black Swan: Strategy Execution for the “Outlier”

When Black Swan events occur, shareholders can suffer significant losses. Forbes magazine in their article, Of Brown Pelicans And Black Swans chronicled the financial impact of various corporate Black Swans–

Company

Start Date

End date

Market cap
(start date, in millions)

Market cap
(end date, in millions)

Money Lost

XOM

Exxon Mobil

3/24/89

4/10/89

55,275

52,170

3,105

MS

Morgan Stanley

9/10/01

9/17/01

45,171

39,259

5,912

BAC

Bank of America

9/10/01

9/17/01

92,439

87,147

5,291

MAR

Marriott International, Inc

9/10/01

9/17/01

9,996

7,892

2,104

BID

Sotheby’s

9/10/01

9/17/01

636

550

85

AXP

American Express Company

9/10/01

9/17/01

40,563

35,048

5,515

BK

The Bank of New York Mellon Corporation

9/10/01

9/21/01

27,269

22,555

4,714

XOM

Exxon Mobil

8/29/05

10/21/05

368,346

349,115

19,231

COP

Conoco Phillips

8/29/05

10/21/05

87,791

80,943

6,848

SCGLY

Societe Generale SA (ADR)

1/18/08

1/28/08

58,192

49,014

9,178

TM

Toyota

1/21/10

2/4/10

155,884

123,749

32,135

DLAKY

Deutsche Lufthansa AG

4/15/10

4/28/10

8,207

7,395

812

BAIRY

British Airways

4/15/10

4/28/10

4,338

3,952

386

BP

BP

4/22/10

6/17/10

186,431

99,273

87,158

The costs of Black Swans can be daunting.

ostrich heads

For Corporate Governance, dealing with Black Swans is risk management. The Board is responsible for oversight and the strategic direction of the company— not execution. This means Board members should take on a devil’s advocate role by asking C-Level managers questions such as–

  • How will you make the strategic direction come alive?
  • Have you considered all financial, strategic, ethical and risk issues?
  • What is the worst that could go wrong and how will you manage the outcomes?

More insights for dealing with Black Swans are covered in the report Black Swans Do Exist published by International Federation of Accountants–

  • Directors should increase their focus on risk, and engage more in detailed appreciation and understanding of the risks in their company’s products and service areas. For the financial services industry, a solution could be for boards to establish a specialized risk committee, and consider the employment of an external risk specialist.
  • Black swans do, and will always, exist. Therefore, be much more alert to the fact that, even at the extreme end of risk possibility, things do actually happen.
  • Executive remuneration should be better aligned with the longer-term real performance (in terms of profitability, not sales volume) of the organization—for example, via deferred remuneration in the form of shares.
  • Governance issues are probably best tackled with a mixture of regulatory, investor, and board responsibility. To only look to investors being more active is unlikely to be effective.

What do you think? Would this help companies deal with the arrival of a Black Swan event – and avoid the ostrich ‘head in the sand’ syndrome?

Coming soon: How Shell Uses Scenarios To Manage Risks.

Brands Invest Big Bucks in Google Advertising

Even big brands invest in pay-per-click advertising on the leading search engine, Google.  According to statistics from Kantar Media, as reported by Ad Age, June 2010 spending on Google pay-per-click search advertising through the Google AdWords program  was dominated by online retailers and BP, a brand desperately trying to win back favor in consumers’ minds following the oil spill in the Gulf of Mexico a month earlier.

All Google pay-per-click advertisers weren’t included in the report, but of those that invested heavily in June 2010 on search marketing, the following companies stood out:

  • AT&T Mobility = $8.08 million
  • Apollo Group = $6.67 million
  • Expedia = $5.95 million
  • Amazon = $5.85 million
  • eBay = $4.25
  • BP Corp = $3.59
  • Hotels.com = $3.30 million
  • JC Penney = $3.30 million
  • Living Social = $2.29 million
  • ADT Security = $2.19 million
  • YellowPages.com = $1.2 million

Brands spending less than $1 million on Google AdWords in June 2010 included Apple and Intel, and brands spending under $500,000 included GM, Walt Disney, Eastman Kodak, and BMW.

However, looking at these results from some different perspectives, consider this — AT&T is the third biggest advertising spender in the United States, spending $2.8 billion in 2009 on measured media according to Ad Age.  The $8.08 million spent by AT&T in June 2010 is just a drop in the bucket and helped drive marketing efforts related to the launch of the iPhone 4.

In fact, the top 10 Google AdWords advertisers only accounted for 5% of Google’s U.S. revenue in June 2010 as reported by Ad Age.  Of the biggest advertising spenders in the Google AdWords program, only a small percentage spend over $100,000 per year.  The bulk of Google’s revenue from its search advertising program comes from a huge pool of smaller investments by smaller advertisers rather than the larger investments made by advertisers with deeper budgets.

Is your brand represented in Google search advertising?  If not, you might want to take a look at the ads consumers are presented with when they type keywords related to your business into Google’s search box.  It doesn’t take a huge investment to be represented.  As the statistics from Ad Age point out, most large and small businesses invest only a small percentage of their overall marketing budgets on search advertising, but at the very least, they are represented.

The Real Reasons People ‘Like’ Brands on Facebook

A report released by ExactTarget reveals some interesting insights into the real reasons why people “like” brands on Facebook.  In an April 2010 survey reported by eMarketer, ExactTarget asked participants what their motivations were for “liking” a company, brand or association on Facebook.

The main reasons according to the study are listed below:

  • 40% = To receive discounts and promotions
  • 39% = To show my support of the company to others
  • 36% = To get a freebie such as free samples or coupons
  • 34% = To stay informed about the company’s activities
  • 33% = To get updates about future products
  • 30% = To get updates about future sales
  • 29% = For fun or entertainment
  • 25% = To get access to exclusive content
  • 22% = Someone recommended it to me
  • 21% = To learn more about the company
  • 13% = For education about company topics
  • 13% = To interact, share ideas, and provide feedback

The most interesting point about this data is that three of the responses are related to receiving discounts and coupons (40% want to receive discounts and promotions, 36% want to get a freebie such as a free sample or coupons, and 30% want to get updates about future sales).  These results aren’t that different from prior research reports related to why people follow brands and companies on the social web.

The biggest takeaways from recent studies related to why people follow brands are:

  1. People want access to discounts and freebies.
  2. People want information about upcoming products before products hit stores.
  3. People want to have fun and be entertained.
  4. People want to learn through interesting, exclusive content that adds value to their lives.

That’s what you need to do to get people to like your brand on the social web.  Give people the four things listed above.  If they get those things, they’ll “like” your brand.  They’ll tell their friends about it.  And they’ll even join the conversation.  Why?  Because you’re engaging them by delivering what they want and need in an interesting, entertaining manner.

In other words, take the social web down to its most basic level.  What do customers want?  Those things are listed above.  Give those things to the online audience, and you’ll have taken your first step to social media marketing and online brand building success.

What Makes for Effective Investor Relations Sites? Part 26: Give Your Investors Non-required Information

Investor relations often suffers from what I refer to as a regulatory mind set. Corporations become so fixated on disclosing information in the form and fashion dictated by their local regulations and accounting rules that they fail to step back and ask themselves if they are giving investors enough relevant information to help them make an informed investment decision. Sometimes good disclosure means that companies have to go outside what is strictly required by the rules and describe in plain English and simple numbers what is important.

How a company chooses to disclose the information is less important than the fact that the information is easily available on the website, and in a quick survey of websites I found important information in fact books, as a separate spreadsheet and as a link on a page within the investor section. In all cases, the information went beyond what regulations would specifically call out for disclosure, but provided valuable insight into company operations.

Take, for example, the fact book produced by ENI, the Italian energy company.

ENI fact book

The fact book is voluminous, running to 120 pages and anyone who reads it will get a very clear picture of their business. Set out alongside, as just a single reference point, is a map ENI produces showing their plan for major start up facilities during 2010 – 2013.

Not everyone has the staff or desire to produce a 120 page fact book, but important information can still be made available on the web site with very simple disclosure methods. The American drugstore retailer Walgreens provides a case in point for this approach. One of the key metrics for any retailer, particularly retailers that are known for growth, is their increase in selling area and units. Reproduced below is a copy of the spreadsheet document Walgreen makes available to investors to compare year over year and quarter over quarter increases in these metrics.

Walgreens

A final example comes from SABMiller, the South African brewer. SABMiller is a company that operates in multiple countries with multiple brands, and as you often hear from vendors in U.S. ballparks, “You can’t tell the players without a scorecard”. SABMiller very wisely places a link entitled Understanding SABMiller on their main investor page which has a variety of links that are quite helpful in giving investors additional insight into the company.

As seen below, one of the links leads to a page on SABMiller brands, which if you were a consumer products analyst following the company, you would find most helpful. (My favorite brand, based on title alone is ‘Brutal Fruit’ although ‘Blue Moon’ comes in a close second.)

SABMiller brands

To sum up, every company has metrics which are important to its business, but which the regulations do not require to be disclosed. Investors want to know about them, and if the company does not give them out, investors will make their own estimates. Why not be forthcoming with the information and make sure they get it right?

In this series:
Previous post: Press Releases
Next post: Contacts

Social Media Use Among Older Adults Nearly Doubles in One Year

If your brand is targeted to older adults, and you’ve heretofore thought that you didn’t need a social media presence because older adults don’t spend time on the social web, you’re wrong.

A new study from Pew Research Center tells us that use of social media among older adults in the United States, age 50 and older, has nearly doubled over the past year from 22% to 42%.

But there’s more compelling data…

According to the Pew Research Center study, 47% of Internet users between the ages of 50-64 (that’s 1 out of every 2 people in that age group) and 26% over the age of 65 (1 in 4 people) use social networking sites.

And this is not a group of people who isn’t making use of the various tools and features available to them.  On the contrary, they’re using social media to share, “links, photos, videos, news and status updates with a growing network of contacts.”

Facebook and LinkedIn are the most popular social networking sites for older adults.

But wait.  There’s still more…

11% of Internet users between the ages of 50-64 (that’s 1 in 10 people) and 5% over the age of 65 use Twitter or a similar service, “to share updates about themselves of see updates about others.”

Still not convinced that brands targeted at older audiences should be on the social web?  Then consider this…

Older adults aren’t just signing up for social network or Twitter accounts and never using them again.  According to the Pew Research Center study, 20% of Internet users between the ages of 50-64 (1 in 5) and 13% over the age of 65 use social networking sites everyday.

So what do you think now?