Why smart communication reduces the risk premium and silence can be a risky ally.
The cost of reactive communication
It’s not enough to communicate only when there is a sense of urgency – during critical processes, IPOs, mergers, takeovers or crises. Being silent has a cost, namely lack of trust, when it is most needed. By creating a trail of wins, an organization can clearly demonstrate its progress, reducing the risk premium and increasing company valuation.
It’s all about trust
All organizations depend on trust from the outside world. Trust in financial position, trust in ethics, trust in the employees’ abilities to engage with the customers. Ultimately, improved trust transfers into a lower risk premium for future cash flows, positively affecting company valuation. To build and retain trust, organizations need to engage in ongoing conversations across all relevant channels, in fierce competition for stakeholders’ attention.
How to control the risk premium
Ahead of a transformation process, such as a dual track process, it is tempting to put communications on hold. This is of course not the way to ensure maximum trust.
When a company sets out a strategy, it only truly succeeds in the eyes of observers if it clearly communicates its objectives before they are achieved.
By creating a “breadcrumb” trail of wins, e.g. over the course of a transformation, an organization can clearly demonstrate its progress, and reduce the risk premium for management execution. The old rhetorical saying; “Tell them what you will tell them. Then tell them. And then, tell them what you just told them,” works just as well for building a credible corporate narrative by injecting action into the equation: