By: Sandra Pedro, CMMP — Editor-in-Chief
Most industries have examples of scandals, crisis and accidents that have affected consumer trust. Not only consumers are looking for more transparent and ethical companies, but institutional investors are more aware of the importance of transparency, reputation, ethical behaviour, values alignment and social responsibility. That is, sustainability as a whole.
This shows how shareholder value is now changing in the modern business era. Investors expect more from business leadership than just short-term returns. If not their investment will go somewhere else.
These are some of the findings of KPMG Australia. However, the findings also recognize that the discussion around the role of corporations and trust is limited to C-suite executives. Other groups, such as advocacy groups, community bodies and customers, also have a voice. The pursuit of genuine efforts for more transparent, honest, ethical and value-driven businesses has received the green light from the market. Those that will not follow the flow will be “condemned” and eventually disappear.
One of the factors that investors have in mind when buying shares is transparency and honesty. Even though delivery of positive returns to shareholders and investors is the first reason, it is followed by transparency and honesty, offering quality products, conducting business ethically and balancing the needs of shareholders with employees and the community. In fact, investors indicated that they would accept lower returns if the company acts ethically towards customers, employees and community and environmental sustainability.
Overpaying leadership and executives is another reason mentioned in selling shares according to the KPMG Australia report. Investors are looking for companies that are actively supporting communities and causes and taking a stand for important social issues.
These findings are motivational factors for investment among younger investors than those of middle age, who are more focused on financial returns. This is also common with younger consumers and women who are more aware of environmental issues, and looking for more ethical behaviour towards employees, communities and consumers, fair pay, transparency and honesty, accountability for actions, and values more than just making a profit.
It’s more than a generational change. It’s a conscious revolution that profit at all cost does not benefit everyone, including those responsible for scandals, crisis and serious accidents, that with their actions can ruin a company’s reputation and (most of the time) business endurance.
And yes, annual reports are crucial for investment decision making, including sustainability and financial data. People believe in many structures and companies and political institutions have changed over the last decades due leadership and executives misleading behaviours that resulted in financial scandals, environmental crisis and ruining of reputations. Trust, better transparency and increased honesty are valuable assets when it comes to investors and customers.
This requires a greater effort from companies. Corporations need to be aware that reporting what is legally required is no longer an option, but also what is relevant for investors and customers. Displaying what is good, but also the bad things, shows authenticity and mitigates reputational risks. Therefore, annual reports are a transparent and honest way to secure trust and ensure direct and honest communication for deeper engagement and they are essential for better understanding of what actions are being taking for the future.