The times when corporate strategies were strictly confidential and only known to a small circle of top executives are gone for good. Not only employees and customers, but also investors are increasingly demanding transparency regarding the future goals and plans of companies – and not at all to the disadvantage of the companies.
New research by Saïd Business School of University of Oxford shows that public presentations on strategy by CEOs “have significant effects on stock value.” The authors looked at more than 900 such presentations by CEOs of leading American companies listed at the NYSE and NASDAQ and found that the average stock price increased by 2% on the same day and 5% within the next four days. Much higher gains in stock prices could be observed, however, when the following three conditions were true:
- The CEO was new.
- The new CEO came from outside the organization and from a different industry.
- The presentation was held within the first 100 days of the appointment of the new CEO.
The results of the study show that newly appointed CEOs who present their strategy within the first 100 days of their appointment can see stock prices rise by an average of 5.3% at the same day. For new CEOs who joined the company from outside average stock price gains were 9.3%. And for new CEOs who were outsiders and from a different industry the average stock price climbed up by even 12.4%.
Richard Whittington, one of the authors of the study, explains: “Our research has shown that analysts and investors take them [strategy presentations] seriously, especially as a means of assessing new CEOs’ experience and competence. New CEO appointments are typically associated with strategic change, which means they set off a lot of investor uncertainty; the greater the uncertainty, the more sensitive the stock price will be to the presentations and to the timing of them.”
To sum it up, new CEOs should make their strategies public as quickly as possible. This is even more true for those who are not yet familiar to investors.