Leaving money on the table: The cost of staying silent

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:

 

Tell them what you will do.
Tell them what you are doing.
Tell them what you just did.


Trust will not be achieved by simply communicating what has been achieved. By communicating on separate milestones, the delivered proof points will demonstrate executive control, and distance the company from competition.

Many owners and leaders of companies choose to stay out of the public eye until they have executed on the strategy, but forget to tell their story to the outside world, at the cost of emerging after a few years with less trust than they started with. That’s why staying silent, at the end of the day, often means having to leave money on the table.

The conclusion is that, as with all things in life, if you are going to do something, do it well. Companies that are forced to craft their whole corporate story when suddenly faced with the public interest that comes with an M&A situation or an IPO process, will not be as successful as those doing it consistently and thoroughly over time. Each major milestone not communicated by a company to its stakeholders is an opportunity lost. A proactive, on-going communication strategy should be an integral part of any corporate strategy, and is clearly value-creating, as recently demonstrated by companies in successful processes such as iZettle, divested to PayPal, and Piab, divested to Patricia Industries, part of Investor AB, and the direct listing of Spotify.