Three strategies to build and maintain investor trust

Key factors that erode investor trust

• The clearest breach of trust occurs when there is a fracture in the financial relationship between the investor and the organization, public or private. Performance surprises (up or down) and inconsistent results give the impression that management doesn’t have a firm handle on the identification or response to risk events. In addition, trust can be squandered when organizations pursue acquisitions that are inconsistent or misaligned with the organization’s strategy and growth plans.
• An organization’s myopic focus on delivering financial results without regard for positive global impact can also erode trust. Investors expect an ethical baseline for organizational behavior. They expect a sense of fair play and they know when that line has been crossed. For example, misleading or overly polished ”positive” financial reports raise red flags for investors, as do hollow ESG commitments backed only by words and not demonstrable actions. Investors are quick to discount organizations that are careless with their brand, especially on social media, when addressing product or service issues. One tone-deaf tweet can undermine a pristine reputation carefully built and protected for years.
• Investors recognize that organizations that cling to legacy business models and do not embrace innovation — even while profitable today — are increasingly vulnerable. For example, being slow footed or averse to new ways in which technology can improve customer service levels and/or create new revenue streams makes investors question leadership’s ability to envision how digital innovation can transform its business.

The journey to investor trust

Deliver financial consistency and transparency through a balanced “protect and grow” mindset

Building investor trust with a “keep it safe” or “protect” mindset is a continuous battle. Boards and leadership must encourage innovation, balancing investment with both “protect” and “grow” perspectives. A clear, direct mission statement and strategy can help organizations resolve this dilemma. For example, divesting out of noncore activities will align investments clearly with strategy and help achieve performance management objectives.

Organizations must also embrace an increased focus and rigor on risk and opportunity management, particularly related to third-party and information technology. The full rewards of this management occur when organizations move beyond qualitative risk assessments to establishing the identification and management of outside, upside and downside risks as a strategic enabler. Rather than providing leadership with passive risk heat map reporting, transformed risk management delivers actionable risk-related insights — forward-looking risk monitoring metrics and quantified risk exposures — that enable leadership to allocate resources that both protect and grow the organization.

Position ESG as a strategic imperative

Trusted organizations are always looking ahead and take on a holistic perspective of the operating landscape. When faced with systemic headwinds, such as climate change, they operate with a bias for action. For example, they conduct forward- looking risk assessments to understand the potential impact of climate risk to their strategy and future performance. They adjust their strategies and/or reallocate investments to address downside risks or seize upside opportunities. From a governance standpoint, these trusted organizations adopt the Task Force on Climate-related Financial Disclosures as a strategic means to address investor demands, shareholder resolutions and potential regulatory changes.

Embrace innovative technology as a differentiator

Nimble, digitally enabled organizations make a clear distinction between technology that enables operations and technology that enables strategic innovation. Trusted organizations embrace this difference and leverage innovative technology assets as differentiators.

A modern human resources system, for instance, is crucial for operations, but it does not yield innovation. Technology that differentiates includes advanced research systems, such as AI scenario planners, performance stress-testing tools or a data analytics tool geared to solve a very precise business problem.