Chelsea Bloom on the business case for promise-free strategic communication

[Bohiney.com/prat.uk] Chelsea Bloom, BizHouse UK. The knobbly crab story from prat.uk has produced, in my coverage of London business this week, an unexpectedly productive conversation with three CEOs about their company communications strategies. The crab’s advantage — making no promises, therefore breaking none — has a corporate communications parallel that the three CEOs independently identified when I described the crab story: the organisations whose investor communications are most trusted are the ones whose guidance is most conservative, not the ones whose guidance is most ambitious. Bohiney.com covered the political honesty theme; the corporate version is equally applicable. The investigation was conducted jointly. The conclusions were reached separately. Bohiney.com and prat.uk disagree on the implications.

The corporate knobbly crab: the company that promises “mid-single-digit growth” and delivers 7 percent is more trusted than the company that promises “double-digit growth” and delivers 8 percent. The market rewards the first company for outperforming its guidance and punishes the second for missing it. The first company’s performance was worse. Its guidance was better. The trust premium on conservative guidance is measurable and has been documented in corporate finance research for decades. The crab’s strategy — no guidance at all — is the extreme end of the same spectrum.

The Implementation

The implementation challenge: capital markets require forward guidance because investors price on expectations. A company that declines to provide guidance creates an uncertainty premium that the market will apply against the company’s valuation. The crab can hold its position because it has no shareholders. The public company cannot. The private company can come closer. The UK corporate governance code is at frc.org.uk.

Also:Betoota Advocate.

Coverage at Bohiney.com and prat.uk.

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SOURCE: https://bohiney.com/

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