Chief Executive Officers (CEOs) have a duty to inform the Shareholders of the performance and state of financial affairs of the company. This includes a view of the likely performance in future. In the case of a listed company, the constraints of closed periods and insider trading must be observed.
Building confidence in the companies performance, competitiveness and strategy are built on a clear and structured communication plan. Careful and considered execution is vital. When companies begin to underperform it falls to the Executive (C-suite) to right the ship and communicate a clear strategy and way forward.
In a recent Forbes article, a strategy for good investors communications is clearly set out. The article was written in response to the shambolic interview given by the CEO of Starbucks, in which the journalist dragged him over the coals about not being open and honest about the company’s poor quarterly performance.
Get in Front of the Bad News
The Forbes article referenced above points out that, going into the interview, Narasimhan already knew that SBUX was struggling. Everyone else knew it, too, especially including those on Wall Street and Jim Cramer. Starbucks’ quarterly performance was in no way a secret. So, instead of trying to claim that the company was heading in a better direction than it was, he should have gotten out in front and started the interview by acknowledging the problems head-on. Before Cramer could even ask a follow-up question, Narasimhan should have explained what the problems were at Starbucks, why those problems existed, and what he was going to do to fix them.
It’s very simple: What happened and what are we going to do about it?
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By being upfront and proactive about communicating the basic facts, a CEO demonstrates good leadership: They are aware of the problems, they’re going to be honest with shareholders and customers, and they are actively engaged in problem solving. Even if you haven’t figured out a solution yet, just say that you need more time to work on it. But don’t act like the problems aren’t real. Ducking the basic facts, especially negative facts, simply makes a leader look disingenuous and causes people to trust them less.
No Matter What, Be Authentic
The article adds that, in advance of earnings calls, especially when the results aren’t stellar, a CEO’s communications staff will be hard at work figuring out how to spin those results and paint them in the best light. This is their job, and it can be helpful as a CEO thinks about how they want to communicate about the results. But this is an exercise. At the end of the day, the CEO has to own the words coming out of their mouth. The CEO sets the standard for communicating with the public.
No matter what, a CEO needs to make sure what they’re saying feels like its coming from them naturally, rather than being fed talking points. Narasimhan, unfortunately, appeared to have learned the lines really well without truly understanding how the way he was talking about Starbucks might not be convincing to the audience.
CEOs must appear to be credible for investors, analysts and journalists to take them seriously. Speaking inauthentically—in a way that doesn’t sound natural and like you—works against that.
Understand the Purpose of the Interview
The Forbes article points out that it’s easy to get wrapped up in the minutia of earnings, and the failures that led to a bad quarter. That truth has to be communicated to the public. However, the numbers, the information, is typically already available in various filings and reports. No one watches a CEO interview to learn about raw facts. Instead, they’re looking for clues about how the CEO plans to handle the problem. They’re looking for clues about that person’s character. Ultimately, they’re trying to decide if they trust this person to right the ship.
This means that a CEO’s job during these interviews is to communicate trust and humbleness and to take responsibility for what happened and for finding a way through it. Six weeks after the interview, no one will remember exactly what was said, but they will remember if they liked or disliked the CEO. They will remember if they trusted them. So, rather than trying to spin the facts or argue that things are better than they seem, the CEOs job is to demonstrate who they really are. If they can do this, the interview will be a success, regardless of whether the quarterly results are incredible or terrible. Trust, credibility, and clarity are the most important takeaways for an audience.
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Your Shareholders Aren’t Stupid
The article adds that Narasimhan failed on all three of these counts. He tried to bury the bad news, came across as inauthentic and disingenuous, and seemed to think that his job was to win an argument with Cramer, rather than demonstrate to the public that he could be trusted with the fate of Starbucks.
Schultz, and all the other Starbucks shareholders, shouldn’t let up until they get some good answers from Narasimhan. Maybe he’s just not good on TV. But right now, all anyone knows is that he didn’t instil confidence in them.
Focus on sharpening communication skills
The case, once again, shows the need of Executives to pay attention to their communication and presentation skills. Truth telling and strategy are key to building confidence even when you are faced with exceptionally difficult news.
I am a firm believer in the value of solid communication skills. Being open and honest about the situation that a company is experiencing and planning a way forward helps shareholders deal with their anxiety and gives the CEO the breathing room needed to prepare for the company’s recovery.
As 1 Thessalonians 5:3 says, it is when there is peace and quiet when disaster strikes. Refrain from fooling shareholders into thinking that all is well with an underperforming company; they are not stupid. An open and honest approach is preferable and will be appreciated more.
