Conference calls involving CEOs and financial analysts are usually focused laser-like on business performance: what were revenues, profits, cash flow and other key indicators for the quarter? What is the outlook? This information affects investor expectations and share prices.
But what happens when CEOs go beyond financial information to show some humanity, and can this affect company valuations as well as how CEOs and their firms are perceived by analysts and investors? A new study by academics in Switzerland and the UK shows that it does.
The more human concern, the higher the share price
The study based on analysing 510 CEO conference calls by 448 large US companies during the COVID-19 pandemic found that the more CEOs made statements indicating human concern (for employees, customers, clients or others affected by the virus) the better those companies fared on the stock market when share prices tumbled precipitously between January and March 2020 as the pandemic took hold.
This is true even though most of these statements were generic expressions of concern rather than specific humanity-based actions to be taken – what the study’s authors label ’cheap talk’.
The study also found that, although these CEO human care statements had little or no short-term effect on analysts’ financial forecasts, firms whose CEOs issued such statements had less stock volatility in the period after the peak stock-market falls associated with the pandemic. This means that market participants “discounted these companies’ future earnings less”, says the study published in the journal Academy of Management Discoveries.
The study – entitled “CEOs showing humanity: human care statements in conference calls and stock market performance during crisis” – is co-authored by Lauren Howe of the University of Zurich, Laura Giurge of the London School of Economics, Alexander Wagner of the University of Zurich and Swiss Finance Institute, and Jochen Menges of the University of Zurich and Cambridge Judge Business School.
Beyond the pandemic and its aftermath, the study’s findings have broader implications for the role of CEOs in showing leadership during crisis situations.
Says co-author Dr Jochen Menges, Associate Professor in Organisational Behaviour at Cambridge Judge Business School:
“Leadership is about both performance and people. CEOs who focus solely on performance miss out on the opportunity to show the care for people that is expected of them. Our study provides evidence that care for people pays off even in conference calls with analysts and investors who are expected to focus squarely on performance.”
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