Does a happy staff member make for a healthy stock price?
WHEN BlackRock, the world’s largest asset manager, evaluates potential stock purchases, its managers look at all the usual financial metrics. Some of them also consider something much harder to quantify: employee sentiment.
“We look for companies that have solid employee rankings and want to buy companies that have improvements in employee opinions,” said Paul Ebner, a portfolio manager and member of BlackRock’s scientific active equity group, a team of quantitative managers. “Happy and engaged employees lead to more wins and more sales opportunities.”
That strategy is in line with a growing body of research suggesting that happy workers can be good for profits. But gauging employee satisfaction levels – and understanding how they might affect a company’s performance – can be tricky
At BlackRock, which has more than $4.65 trillion (R54.9 trillion) in assets, the company’s 77-member quantitative team began adding data from social media websites, including employee sentiment data, into its models for evaluating holdings and investment prospects two years ago.
Today, 20 percent of the data used by the group to analyse companies is ‘unstructured’ – meaning it does not come as line items in analyst reports or regulatory filings. Employee sentiment was part of that, said Ebner.
He wouldn’t say exactly how his group gauges employee sentiment at companies they’re interested in, but he did say BlackRock employs automated internet searches to look for key positive and negative words across a variety of blogs, social media, chat rooms and employee websites. The team is particularly interested in changes in employee sentiment that might indicate good or bad things happening at a company.
Employee sentiment
BlackRock is not the only company that looks at employee sentiment. Ron Josey, an analyst at San Francisco-based JMP Securities, said he regularly checked to see what peoplewere posting about the companies he covered on the job website Glassdoor.com, which allows its users to anonymously comment on employers and rate them on a one-to-five scale.
When Marissa Mayer took over as chief executive of Yahoo, he said he noticed pos- itive Glassdoor postings on the change.
Even the investors who use sites such as Glassdoor acknowledge they are imperfect tools for analysing stocks. There is no way of knowing, for example, whether the reviews posted on the site are representative of employee sentiment in general – or even if they were posted by actual employees. And sample sizes tend to be small.
Still, a number of examples can be found on Glassdoor’s website of rising or falling sentiment that paralleled or came in advance of similar moves in stock price, according to an analysis of the site’s ratings and the relationship to share performance that was conducted for Reuters by Accern, a New York-based analytics provider for institutional investors.
For example, during much of 2013, Atlanta-based Cumulus Media seemed un- stoppable. Between April of that year and January 2014, the nation’s second largest operator of radio stations saw its stock price rise by more than 142 percent.
But even as the stock was climbing, the percentage of negative reviews of the work environment at Cumulus was rising. Thirty of the 43 anonymous comments posted on the Glassdoor site during the period, or about 70 percent, were negative, compared with 40 of 67, or about 60 percent, that were negative in the preceding 12 months. Between April 2013 and January 2014 the company’s average rating on the site dropped from 2.59 to 2.21, according to Accern’s analysis.
In 2014, in the face of a rapidly changing advertising market, and increasing competition from online competitors, the firm’s stock fell from its high of $8 (R94.55) on January 7 to a low for the year of $2.88 on November 11. On Tuesday, it closed at $2.56.
When asked for comment about any link between its tumbling stock price and the Glassdoor ratings, a Cumulus spokesman said: “Over the last year, Cumulus has hired more top talent than all other radio companies combined.”
Sometimes, increases in Glassdoor ratings go hand in hand with rising stock prices. At video-on-demand company Netflix ratings rose over the last two years as its stock price rose 157 percent, according to Accern’s analysis.
There are also examples of companies where Glassdoor ratings soared in advance of stock price tumbles, or where comments grew more negative even as a company was doing well or its share price was about to take off.
At San Francisco-based online game maker Zynga, the company’s stock price has dropped since March of 2014, from $5.89 per share to $2.80 on Tuesday. But at the same time, its average monthly employee rating on Glassdoor has gone up slightly, from 2.78 before the stock dropped to 2.90 in March of this year. Netflix and Zynga declined to comment. Whether or not employee sentiment should be factored into investment decisions, the research is intriguing to some company trackers. In 2011-2012, human resources consultant Towers Watson surveyed 518 000 employees at 41 companies, and then looked at the 12 months of financial performance that followed. Companies with engaged employees outperformed the average in their sectors at a significantly higher rate than companies with less-engaged employees.
David James, co-portfolio manager of the $4.1 billion James Balanced: Golden Rainbow Fund, is one of the skeptics. A few years ago, his team tried to see if employee turnover rates were a reliable predictor of company performance, on the theory that high turnover was an indicator of an unhappy workforce. But the team found no quantifiable impact. “We tabled it and have not looked at it further,” he said. – Reuters
THE US and Iran – bitter enemies for so long – have sat down at the negotiating table and to everybody’s surprise have actually come to an arrangement. The US’s goal is that Iran disables its nuclear weapons and stops all processes that are capable of making new ones. Iran, for its part, wants the US and its allies to lift the sanctions that are holding back its economy. From the US’s point of view it all comes down to how likely Iran is to build and own nuclear weapons. The US doesn’t necessarily need Iran to be nuclear-free – it just needs reassurance that any presence of nuclear capacities won’t be turned into weapons.
The US’s negotiation therefore hinges on how many centrifuges (used to extract uranium from uranium ore) it would keep in operation, to what concentration uranium would be processed (power plants need a concentration of 5 percent, bombs need a concentration of over 90 percent), and what Iran will do with its existing stock of uranium ore. Iran wants an end to the brutal sanctions that have been placed on it by the US and other members of the UN Security Council.
Since the US initially imposed sanctions in 1979, they have become increasingly severe and currently Iran is almost completely cut off from the western economies. All trade with the US has been stopped and through secondary methods the US has sought to bring the Iranian economy to a halt. In 2012, it froze all US assets owned by the Central Bank of Iran and the Iranian government.
The US imposed sanctions on any company that had business with Iran and banned US financial institutions from moving money in or out of Iran. This was especially targeted at the oil and gas sector, which accounts for 80 percent of Iranian government revenues.
US and EU tanker companies were stopped from loading Iranian cargo, including oil. Initially this was taken up by shipping companies outside of the US and EU, but in 2012 the EU extended its sanction to include the banning of shipping insurance on vessels that dealt with Iran.
As much as 95 percent of oil shipped from Iran to clients such as China, India, South Korea, Singapore, South Africa, Turkey and Taiwan insured their cargo through European financial markets.
After the ban they either had to seek new insurance markets or stop buying oil from Iran. India – the second largest buyer of Iranian oil after China – struggled to find solutions and switched to buying more oil from Saudi Arabia. Chinese oil purchases from Iran in 2012 were half what they were in 2011.
A further blow to Iran’s oil exports came in 2012 when Swift – the largest electronic payment system – cut off Iranian banks that had been blacklisted by the EU. This meant for many countries trading with Iran that the only payment option was cash or gold, making trade impossible.
Iran’s currency depreciated severely, inflation rose, and local business dried up along with the disposable income of consumers. The sanctions have been enough to bring Iran to the table and the initial negotiations have shown that both sides are willing to compromise.
Aside from the irony that the US has over 5 000 nuclear warheads, a successful disarming of Iran and an end to economic sanctions will be a win-win situation for everyone – including South Africa to whom Iran could be an important consumer market and cheaper source of oil.