Clear communication on CEO good for share value

The chief executive of a listed company plays one of the most roles in the performance of the firm’s shares on the bourse, a research has found. Therefore, an announcement that touches on the CEO must be relayed to investors in an ingenious manner, especially if the company is a dominant player in the market.

Kenya’s largest telecommunication company, Safaricom #ticker:SCOM, during the release of its financial year results last week, announced that chief executive Bob Collymore was due to return to the helm after taking a sick leave in 30 October last year. This news, among other factors, saw its share price rise on Wednesday by Sh0.75 to close at Sh29.

When handling the situation last year, Safaricom issued a statement via the media that was immediately relayed to stakeholders, avoiding any speculation on social media. This also meant that its share price and brand image would not suffer.

Through its chairman, Nicholas Ng’ang’a, the company stated that Bob Collymore was to get treatment for a number of months due to an illness. In the same statement, he said that during the absence of the company’s chief financial officer, Sateesh Kamath would take primary role supported by the Director of Strategy and Innovation, Joseph Ogutu.

Offering an immediate interim replacement from within meant that the mobile phone company was in safe hands and that the interests of the investors were well taken care. This impacted the firm positively as its share price rose by Sh0.25 from Sh25.25 to close at Sh25.50 on 31 October 2017.

“Before making such an announcement, the first thing is to ensure that the information is not leaked to the public as this will agitate investors negatively impacting its share price. Dispersing the information themselves gives them leverage as it will be done calmly and will not seem rushed,” said Stella Kimani, a brand strategist.

According to a study published in the Strategic Management Journal that examined the changing impact and shareholders’ perceptions of the CEO from 1950 to 2009, a firm’s performance can be “statistically attributed to CEO-level factors and that their significance had increased greatly in recent decades.”

“While prior research has sought to calculate the proportion of firm outcomes attributable to the CEO, this study takes an alternative approach by talking to shareholders to analyse what shareholders think about the importance of CEOs.”

It finds that shareholders, perhaps the most financially motivated stakeholder, view CEOs as valuable to a company and their perceptions of a chief executive will be revealed in the market reactions.

In November 2011, Lloyds Banking Group, the largest retail bank in Britain with more than 30 million customers, announced that its CEO, António Horta Osório, would take a sick leave after just eight months into the job. When the news broke of his sudden leave of absence, it triggered a five per cent slump in the bank’s share price to £29, which was almost one billion pounds off its value as stakeholders feared that his departure was permanent and that the company had not named a replacement immediately.

The CEO had been tasked to reduce the £200 billion of bad loans and decrease the short-term borrowing that the bank was dependent on for running its operation among other heavy responsibilities. This overwhelmed him and he was diagnosed with stress-induced insomnia. In a statement, the bank said that he was taking a temporary leave of absence due to illness and that he was expected to return to his duties before the end of the year.

African Laughter