Peter Firestein

Most CEOs know their largest shareholders on a first-name basis. Investor Relations Directors speak to them most every day. This continuous involvement often gives management a false sense of familiarity with those who determine its stock price. It is a false familiarity because it masks their relative lack of information about how investors make decisions to buy and sell the company’s shares.

One reason for this disconnect lies in the nature of engagement between managers and investors. Investors approach their meetings with managers for the purpose of eliciting as much information as possible. And managers, who want nothing but to boost the share price, spend all the time available telling their story.

The story they tell is the one they, themselves, find most compelling. Unfortunately, the one-way nature of the conversation means that usable intelligence on how investors think is usually missing from managers’ toolkit. They never hear it. So, the story management tells has limited overlap with investors’ way of judging the company. The differences between the professional cultures of managers and investors are too great.

Managers generally achieve their positions because of an ability to see the broad contours of an industry and act on what they see. They are responsible to their boards for delivering an acceptable return on the company’s capital, and their enterprise is long term. Most investors, on the other hand, worry about quarterly earnings and margin growth on the belief that these measures forecast share price.

If we were to play out this scenario to the end of time, return on capital and share value would converge. But there is no escaping the fact that different time horizons mean different ways of measuring performance. For investors, the “Sell” button is often too close at hand to allow time for management to do its job. Investors’ preferred action is often to dump the stock rather than enlist in management’s long view.

Because managers do most of the talking in the relationship between companies and investors, most of the feedback they receive on their performance comes through the stock price. It tells them whether investors admire them – or don’t. But it doesn’t tell them why. So, it reveals little in the way of information about what they can do about it.

In my book, “CRISIS OF CHARACTER,” I describe this dynamic as a “Value Paradox.” Management goes to work every day with a certain idea of how to create value out of the company’s assets. But investors, operating far away and with different opinions on how to create value, determine the stock price. And, in setting value for the shares, they often exert a powerful effect on the personal wealth of managers.

The good news is that managers can resolve this paradox. Investors’ thought processes are knowable. And, in being knowable, they are addressable. But to learn how investors really think about a company, management must undertake one singularly unconventional act:

It must ask them what they think.

It can ask by mandating perception studies. Or it can invite investors in to offer perspective. In doing either of these, management may see that asking is a communication in itself. Showing an interest in investor opinion can – as a distinct act – enhance market confidence in the company in addition to showing managers how they can communicate and operate for better value.

“We live in a world bloated with data, yet starved for knowledge.”

- Anthropologist Elizabeth Lindsey

There isn’t a public company in America free of shareholder dissonance. Or a management team that thinks investors value its company fairly. In private life, we call such relationships dysfunctional. But in corporate life, they’re pretty normal.

I spend many of my days speaking with institutional investors on behalf of corporate clients who want to know what their investors (really) think of them. Companies who ask me to do this generally believe that an understanding of what investors think, and why they think it, improves the company’s ability to construct a sound business and communicate its value.

Some of my colleagues in the consulting world approach the investigation of investor attitudes by trying to measure them. After all, management discipline is, as much as anything, about metrics. So, these consultants may ask investors to rate aspects of the client’s strategy and operations on a scale from 1 to 5, for example. Results derived in this way are easily graphable. Such graphs can tell a company whether its investor relations, its transparency, its marketing, or its competitiveness are considered to be better or worse than last year.

My preferred way of developing investor intelligence takes a narrative approach based on asking the question “Why?” It accommodates the possibility that investors have a story to tell that isn’t quantifiable. This approach holds that the crux of investors’ attitudes goes beyond numbers and can’t be understood without probing subjective opinions – the stuff of human impressions. Billions of dollars of market value ride on investors’ gut perceptions of managements, their strategies, and the likelihood that the particular individuals running the company will execute those strategies effectively. These opinions are knowable if you ask. But trying to define them by measuring leaves a big part of the picture blank.

As children, we all began our learning with story. It’s narrative that gets presidents and congressmen elected, sends countries off to war, and moves markets. And it’s investors’ narrative about a company that assigns a premium or discount to its shares. But you have to know what that narrative is before you can change it.

What companies must decide is how much they really want to know.

© 2011 Peter Firestein

There may be no better gauge of a society’s character than the way it uses language.

Is the language of its public discourse the language of communication, or of coercion?

What does Sarah Palin mean by her constant evocation of guns in her politics and on her television show? The answer, I think, is that she doesn’t mean anything at all. The former governor is expressing a wish to associate herself with what she believes to be a deep value of her constituency: not only the right to possess firearms, but the freedom to become immersed in the culture of guns as an expression of personal identity.

Yet, despite her use of the metaphor of riflescope crosshairs overlaid across targeted congressional districts, including that of Gabrielle Giffords, Palin doesn’t seem overtly to be threatening anybody with violence. Not true of Sharron Angle, whose Nevada Senate campaign failed by the breadth of a hair, and who implied that there might be “Second Amendment remedies” if her side didn’t get its way.

The notion that Gabrielle Giffords’ attacker was influenced by extreme polemics has been rejected by those who engage in those polemics. The point is not provable either way. But it is the case that the public corruption of language in America did not start with the recent ascendance of gun talk, race talk, and hate talk. In the years before the debt crisis, the language that prevailed was the language of money. Wealth became a symbol of intelligence. If you were smart enough to get a lot of it, your status as an authority on how the world worked was taken as self-evident. (In fact, hasn’t it always been the case in America that the answer to a loudmouth was: “If you’re so smart, why ain’t you rich?”).

After the great financial collapse, the absence of accountability that had preceded it became clear to all. This gave way to a general acknowledgment that society’s acceptance of the language of money had brought it to financial ruin.

The Giffords shooting has frightened America’s language abusers. The civilized tone that has appeared in Congress in the few weeks since the Tucson tragedy reflects a new appreciation of how difficult it is to predict where accountability will land when something bad happens. The functioning of the political and social system depends not only on law, but on the intentions – the goodwill, God help us – of its participants. A wish to communicate is the optimum basis for civil dialogue. In its absence, fear will have to suffice.

It is impossible to assess the value lost to corporations by the forced departure (whether done subtly or directly) of key executives because of inside politics—particularly the politics of CEO succession. Under Jack Welch, GE groomed a number of able executives—each terrifically gifted in his own right. Jeff Immelt became CEO on Welch’s departure. The other two surviving candidates left. And so the company’s great investment in the departing individuals was lost.

The visible departure of executives at the naming of a CEO may be a small part of the real loss that has occurred in the ascendance of single winner. Often an ambitious rising star knocks off rivals years before making it to the top post. This is generally not accomplished by the individual, alone, but by factions allied with one or another pretender to the corner office. It often involves manipulation or withholding of information—or maneuvering the target into an untenable business situation.

There are many ways executives can compromise long-term shareholder value. Included among these is management of the company for short-term stock performance in ways that benefit the CEO’s own compensation package. But perhaps even a larger value-killer is the fratricide that can occur in the race to the top.

There is a long history of self-serving behavior that compromises the larger organization. You wouldn’t want to have been a rising star in Stalin’s USSR, for example. Your ability to survive would have been inversely proportional to your ability to lead others. Papa Joe would have had you knocked off had you shown the slightest ability to induce others to think independently. This point is made by the Polish journalist Ryszard Kapuscinski in his book “Travels with Herodotus,” in which he tells the story of Periander, who assumed the throne of Corinth on the death of his father—in the seventh century BC.

Periander wanted to learn how to maintain control of his newly inherited kingdom, so he dispatched one of his aides to an older, experienced tyrant to request some how-to advice. “Dictatorship for Dummies,” if you will. The aged tyrant said nothing to the aide, but took him on a tour through his cornfields. As he walked along, the experienced dictator seized every cornstalk that stood above the others and broke off its head. He persisted in this despite ruining the best of his crop. When the aide returned to Periander and described this strange behavior, Periander got the point immediately. How he put it to use need not be described here.

No question that the makeup of an executive leadership team must undergo adjustments in accordance with the needs of the organization and the ability of individuals to contribute. And, in this gentle modern age, any blood on the corporate carpet is only figurative. But the blood metaphor has a reality to it in representing undeserved pain, not only of able executives who have found themselves on the wrong side of a power struggle, but of investors who continue to believe in the company’s focus on building and preserving value.

“I’m sorry, so sorry, please accept my apologeeee. . .”

- Brenda Lee

In 1970, an insipid but highly successful movie called “Love Story,” based on an equally successful and insipid novel of the same name, lit up American screens. The plot line was exactly this: Sensitive Harvard students fall in love. Girl gets cancer and dies. Boy is sad. That’s it.

The movie was sold with the subtitle: “Love means never having to say you’re sorry,” which, in this writer’s experience, isn’t any truer about love than it is for corporations that inflict tragedy on the public.

Ask BP CEO Tony Hayward.

Hayward has now made a number of apologies for the catastrophic BP oil spill in the Gulf of Mexico. He’s said he’s sorry. And much of the public commentary amounts to questions about his sincerity – whether, in fact, he means it.

The same question arose recently when Lloyd Blankfein began making apologies for Goldman Sachs’ involvement in creating conditions that led to the financial meltdown. Was Blankfein in apology a different Blankfein? No one can say whether he’s been changing. But there’s no question that he’s learning.

One thing the current anger at the corporate sector makes clear is the importance of ingenuousness with the public. As much as anything else, people hate the dissembling and incessant spin with which they feel confronted. They now base many of their attitudes toward companies on managements’ apparent intentions. In the age of environmental awareness, people choose companies from whom to buy in much the way they select their politicians—according to their perceived values. BP’s seemingly endless delay in expressing sorrow to the families of the 11 workers who lost their lives constituted one of the major points of public resentment against the company.

In 2006, the Pasta de Conchos mine disaster in Mexico, which left 65 dead, aroused enormous resentment against the mine’s owner – Grupo Mexico – for that company’s apparent imperviousness to the sorrow of lost workers’ families. “No one from Grupo Mexico ever came to say they were sorry,” one labor leader said. An expression of regret would not pay for a single meal for a child who’d lost a father, but, among the bereaved, empathy became a kind of currency. Victimized families needed to feel their tragedy was understood by those who had brought it down upon them. They needed to be seen.

In the hard-nosed, metrics-based world of corporate life, intentions mean little; results are everything. So, it’s hard to overestimate the dramatic shift corporate managements must make when confronted with public anger. It is becoming apparent that, In BP’s case, such anger can threaten a company’s survival. In confronting this challenge, companies need more than new tactics and strategies. They need a new kind of thinking. Business has always been an objective, left-brain exercise. In most cases, if you could determine the return on investment expected from a particular initiative, you pretty much knew whether or not to go ahead with it.  But responding to angry communities, angry customers, and angry regulators requires access to the other side of one’s brain–the right side, where subjective awareness and empathy live. There may be a greater distance between those two sides of a businessman’s brain than between his corporate headquarters—just outside Washington, let’s say—and one of his factories in China.

“I’m sorry” has never been a part of the business playbook. But in the age of the Internet, where everybody knows practically everything about you (or will in the next 15 minutes), where there is no refuge from constant scrutiny, the Corporation Operator’s Manual is in drastic rewrite.

Acting without an understanding of what your stakeholders think is one definition of blindness, if not stupidity. It may be, in some cases, that companies’ reluctance to express empathy to their victims involves a fear that admitting blame increases legal liability. It may also be that companies that have inflicted harm have found ways to see themselves as victims—if only of bad luck. We know that the vibrancy of capitalism relies on self-interest. But there must be a point in the aftermath of any human tragedy where the distinctions among separate interests evaporates, where the events that have befallen a community create a unity of concern. That will be the content of the chapter on corporate life, culture, and psychology now being written.