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Straight Talk Key to CFOs' Success

Withholding information puts reputations and stock prices at risk.

By David Corrado | Updated on October 14, 2008

Even as the financial crisis makes effective shareholder communications a matter of life and death for some companies, straight talk is in short supply. “CEOs and CFOs can’t just be cheerleaders saying everything is going well. The investor community is too sharp and has too much information for that,” says Chris McClean, an analyst with Forrester Research. “Investors want to hear that executives understand their business, what’s going on in the market, and how they are positioning the company for sustainable success.”

Indeed, poor communications accounts for five of the 10 most common executive errors, according to a recent Thomson Reuters study. The study–which reflects client feedback, news stories and discussions with clients–blames CFOs for:

  • Failing, out of ignorance, to promote a corporation’s strengths.
  • Ignoring, out of fear, legitimate inquiries from aggressive hedge funds and activists.
  • Jeopardizing credibility by tailoring their message to just one group of investors.
  • Jeopardizing their company’s stock by providing minority shareholders with less than timely access to management.
  • Mishandling corporate earnings guidance.

Providing quarterly guidance is tricky, says Arzu J. Cevik, director of Thomson Reuters Strategic Research and co-author of the study, because “it may attract short-term investors and thus increase volatility in a stock,” she says. However, “guidance may provide more transparency, liquidity and stability in one’s stock and deter accounting-relating fraud.”

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