Monday, June 10, 2013

What are your words worth?

I'm pretty sure that "letting it all hang out" is not the first thing CEOs have in mind when comes to discussing a company's hard times.

Yet candor may be responsible for the financial health of some companies, according to a survey by consultant and author Laura Rittenhouse.
"When leaders clearly communicate the company's principles and profit expectations to customers and investors, they build confidence in the company," she writes in her book Do Business With People You Can Trust. "When they walk their talk, they are more likely to extract better performance from their employees. These CEOs can draw on 'credibility currency' when times get tough."
Her most recent survey, reported in December, evaluated how frank the leaders of 100 leading companies are, and how well their stocks have performed. 
The results are impressive: The companies in the top quartile of the group saw their stock rise an average of 9.9 percent, while those in the bottom quartile experienced a drop of 5.7 percent. This is the sixth consecutive year that the most candid companies have outperformed the least candid ones.
The five companies with the greatest gains in rank (over year-earlier levels) had stock gains averaging 12.4 percent, vs. a 5.7-percent loss for the bottom companies and a gain in the S&P 500 of only 3.1 percent. The five big improvers are Home Depot, Intel, Foot Locker, Franklin Resources, and Citigroup.
I don't know her methodology, but it must involve a subjective judgment of the candor in those companies' investor letters and other published material. It would make sense that companies that don't have their heads in the sand about their situations would do better.

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